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Informist, Tuesday, Jun. 24, 2025

 

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--Asia Index CEO: Funds on BSE 1000 can capture full gist of equity market
--CONTEXT: Asia Index CEO Singh's comments in interaction with Informist
--Asia Index CEO Singh: Liquidity profile of BSE 1000 companies strong
--Asia Index CEO: Some AMCs in talks with us for index funds on BSE 1000
--Asia Index CEO: BSE 1000's bottom 500 cos' mkt cap ratio up from 2019
--Asia Index CEO: BSE 1000 fund ideal for AMCs with strong trade execution

 

By Rajesh Gajra

 

NEW DELHI – Capturing the essence of the domestic equity market to the fullest extent possible is what the recently launched BSE 1000 index aims to achieve, according to Ashutosh Singh, managing director and chief executive officer of BSE Ltd.'s wholly-owned subsidiary Asia Index Pvt. Ltd. The BSE 1000 is the index with the largest set of companies in the country. It has the 1,000 largest and most liquid companies from within the BSE AllCap index.

 

In an exclusive interaction with Informist, following the primary market issue of units of the first index fund on BSE 1000 by Motilal Oswal Mutual Fund, which closed Thursday, Singh said the BSE 1000 index captures 94% of the total market capitalisation on the BSE as compared to the 45% market capitalisation share of the popular benchmark BSE Sensex, which has 30 of the largest, most liquid stocks.

 

Addressing concerns on the liquidity profile of the bottom 500 companies in the BSE 1000 that could make the tracking error of index funds on the index go haywire, Singh said this was adequately addressed even before the launch of the Motilal Oswal BSE 1000 Index Fund on Jun. 5. The liquidity profile of BSE 1000 companies is strong, he said. The average daily cash market turnover of the bottom 500 companies in the index, on an aggregate basis, rose 19.4 times to INR 64.76 billion in March from INR 3.34 billion in March 2020, according to data collated by Asia Index.

 

Singh said more asset management companies have had preliminary discussions with Asia Index with regard to the BSE 1000's features, suitability, and potential challenges. A couple of fund houses have also enquired about the BSE 1000 Multicap Equal Size Weighted (25%) index, which comprises companies from the BSE 100 LargeCap Total Market Cap index, BSE 150 Midcap index, BSE 250 Smallcap index, and BSE Next 500 index, with each of these four segments weighted equally at 25%. The BSE 1000 index and BSE 1000 Multicap Equal Size Weighted (25%) index were launched by Asia Index in February along with three other indices--BSE Next 500, BSE 250 Microcap, and BSE Next 250 Microcap.

 

A look at the concentration risks, however, in terms of the weights of the top five or 10 stocks as a proportion of the total market capitalisation of an index shows the BSE 1000 offers significant advantages over the BSE Sensex and BSE 100, but not in comparison to the BSE 500. The BSE 1000's top five stocks' total weightage was 23.1% as of May 30, versus BSE 500's 24.3%, and BSE Sensex's 47.9%.

 

But Singh believes a better parameter to compare is the market capitalisation ratio of the bottom 500 companies in the BSE 1000, which, according to data from his company, has risen sharply to 5.7% in the current month from 2.2% in June 2019. The market cap ratio of the bottom 500 companies is calculated as the proportion of their aggregate market capitalisation to the aggregate market capitalisation of all 1,000 companies in the index.

 

The Asia Index chief executive officer also pointed to the changing trajectory in fundamentals of the companies on the bottom rung of the ladder. According to data compiled by his company, the trailing 12 months aggregate net profit of the bottom 500 companies of the BSE 1000 index as of the March quarter was INR 750.00 billion.

 

This is in stark contrast to the situation that prevailed over five years ago, Singh said. In June 2020, the BSE 1000's bottom 500 companies' trailing 12 months aggregate bottom line as of the March quarter was in the negative, he said. Further, the trailing 12 months aggregate revenue has more than doubled to INR 12.64 trillion in the same period.

 

In terms of challenges of tracking error due to perceived low liquidity in the bottom 500 companies of the BSE 1000, Motilal Oswal BSE 1000 Index Fund will have the first-mover advantage as it deploys the corpus into the 1,000 companies. If more fund houses launch index funds or exchange traded funds on the BSE 1000, the funds corpus will rise and there may be challenges of deploying larger inflows in the shares of the bottom 500 companies of the index. But Singh said asset management companies which have robust trade execution systems and capabilities will not face any challenges in being fully invested in the BSE 1000 companies at the lowest impact cost, and on the whole the tracking error will be on the lower side.

 

The competitive landscape in indices is quite intense when it comes to fund houses choosing between the BSE Sensex and the National Stock Exchange's Nifty 50 index, or between the BSE 100 and the Nifty 100, for launching index funds or index ETFs. But the NSE does not currently have any index with more than 500 companies. Asia Index has moved fast in launching one with 1,000 companies.  End

 

Edited by Rajeev Pai

 

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