BSE periodically reviews and adjusts its indices to reflect changes in the market landscape. This process of index reconstitution involves removing some companies and adding others, based on performance, market capitalization, and liquidity criteria.
The recent reconstitution (as per the BSE circular on September 16, 2024) affects key sectors and includes significant changes that market participants should be aware of. Some key companies that were added includes Varun Beverages, TVS Motor and JSW Energy while some that were dropped includes Tech Mahindra and Tata Steel.
Why do reconstitutions happen?
- Relevance & Performance: Companies in an index need to remain relevant, reflecting the best performers in their sector.
- Criteria: Changes are made based on market capitalization, trading volume, and financial performance.
What are the impact on investors?
- Stock Prices: Stocks added to an index often see an increase in demand, while those removed might experience a decrease.
- Portfolio Adjustments: It’s important for passive fund managers and investors to rebalance their portfolios in line with these changes.
What are the differences between BSE & NSE reconstitutions?
- Frequency & Criteria: BSE and NSE both follow similar principles, but the timing and specific criteria might vary.
- Market Influence: Reconstitution impacts on indices like NIFTY (NSE) might differ in scale from those on BSE due to the indices’ individual weightage in the market.
For more details on the current changes, you can refer to the BSE Circular.