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A first: BSE launches IPO index

This article was posted on Aug 25, 2009 and is filed under Market News

To have a minimum of 10 stocks, the index will value companies for 2 years. The Bombay Stock Exchange (BSE) On Monday announced the launch of an index to track the value of companies for two years from the date of their listing after their initial public offers (IPOs). This is the first such index in the country.

According to BSE, IPOs of companies with a free-float market capitalisation of Rs 100 crore and above on its first day of listing would be included in the index. Follow-on public offers (FPOs) would be kept out of it.

A scrip would be excluded from the index on the second Monday of a month after it had been listed for two years. At any point in time, a minimum of 10 scrips would be maintained to form the index. In case there were less than 10 scrips due to possible exclusion, the ouster would be delayed until a new company was added to the index pack. Any inclusion would be on the third day of listing.

The maximum weight of any scrip would be capped at 20 per cent and the constituent weight would be reviewed at the time of inclusion or exclusion, and on a monthly re-balancing basis.

The base date of the index is May 3, 2004, and the base value is 1,000. The index value on August 21, 2009, was 1,901.67. The value of the index would be calculated and disseminated on the BSE website on a real-time basis from On Monday.

Initially, 50 stocks have been chosen for the index, including the recently-listed Adani Power (8 per cent weight), Power Grid Corporation of India (16.68 per cent), Reliance Power (18.40 per cent), Mundra Port and Special Economic Zone (10.39 per cent) and Rural Electrification Corporation (8.23 per cent).

While the 30-share benchmark index, Sensex, has moved up 180 per cent since the base year of the BSE IPO Index, the latter is up only 90.16 per cent, projecting how some of the companies with a market capitalisation of over Rs 100 crore have performed.

The reason the index has not performed in line with the Sensex is mainly the lacklustre performance of some large IPOs like Reliance Power, which has the highest weight in the index and is ruling way below its listing and ex-bonus price. Several real estate stocks in the index are also ruling below their IPO prices.

BSE said since it expected robust growth, which would boost IPOs by new companies too, it was the right time to introduce an indicator to track the primary market.

Internationally, some of the most popular IPO indices are Dow Jones STOXX IPO index, FTSE Renaissance IPO Index, NYSE IPO Composite Index and Bloomberg IPO Index.

source: Business-Standard

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