BSE Unveils Housing Finance Index; LIC Housing Finance Tops Weight

The BSE Index Services Pvt. Ltd. on Monday introduced the BSE Housing Finance Index, a new sectoral benchmark covering 11 companies from the housing finance space.

The index comes with a base value of 1,000, with 22 June 2015 set as the base date.

Over the past one year, the sector has delivered a total return of -12.84%, showing recent pressure.

The index draws its constituents from the broader BSE 1000 Index and focuses only on companies classified under housing finance. It will be reviewed twice a year, in June and December, in line with standard index practices.

What Does The New Index Track?

The BSE Housing Finance Index is built to capture the performance of companies that primarily operate in the housing finance segment. It uses a capped free float-adjusted market capitalisation method, which means larger companies carry higher weights but within defined limits.

The index includes 11 stocks, with names such as LIC Housing Finance, PNB Housing Finance, and Sammaan Capital forming the top layer. Other constituents include Home First Finance Company, Bajaj Housing Finance, and Aptus Value Housing Finance.

Of these, LIC Housing Finance commands the highest weightage, with a 17.16% share of the index; and 3.89% is the minimum weightage in the index. In all, it is a pure financial service sector index, keeping in view the characteristics of the sector.

What Motivated BSE To Come Up With This Index?

In essence, it is expected to serve as a benchmark index that would be specifically created for monitoring the performance of housing finance companies in their own segment. Until now, housing finance companies were represented in more generic indexes.

The other use of such an index could be its application in building passive investment instruments like exchange-traded funds (ETFs), index funds, portfolio management services (PMS), mutual funds and others.

The reason why this kind of sectoral index can be useful is that the increasing tendency among fund managers and portfolio investors is to adopt specific themes while creating passive and active investment funds.

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How Do The Numbers Speak?

The annual return of -12.84% of the housing finance market suggests that there was significant pressure over the past year. However, looking at the long-term figures makes it clear that it's a stable segment overall. Thus, it has returned 9.01% in three years and 3.94% in ten years.

The launch also signals BSE’s push to expand its index offerings. As part of BSE Ltd, one of Asia’s oldest stock exchanges and the home of the Sensex, the index arm continues to build more specialised benchmarks for investors.

With the addition of the Housing Finance Index, investors now have another tool to track a key segment of the lending market. The question now is whether this focused approach will attract more passive money into housing finance stocks in the coming months?

Sources:

Fortune India

The Economic Times