BSE 500

What is the BSE 500?

The BSE 500, or S&P BSE 500 Index, is a comprehensive benchmark that tracks the performance of the top 500 companies listed on the Bombay Stock Exchange (BSE) in India. Launched to provide a broader representation of the Indian equity market, the BSE 500 covers companies across large-cap, mid-cap, and small-cap segments, spanning more than 20 different sectors. This index accounts for over 90% of the total market capitalisation on the BSE, making it a holistic indicator of market trends and investor sentiment. The BSE 500 is designed to reflect the overall health and movement of the Indian stock market, offering insights into economic cycles and structural shifts within various industries. Its wide coverage ensures that the index includes both established industry leaders and promising emerging companies.

The composition is regularly reviewed and rebalanced to maintain accuracy and relevance. The BSE 500 serves as a crucial benchmark for mutual funds, portfolio managers, and institutional investors, helping them evaluate performance vis-à-vis the broader market. It also forms the basis for index funds and exchange-traded funds (ETFs), giving retail investors an opportunity to invest in the Indian market’s breadth. The BSE 500’s diversified structure makes it a vital tool for understanding the Indian equity landscape.

BSE 500 stocks selection criteria

The selection process for the BSE 500 index is meticulous, ensuring broad market representation and investability. The primary criterion is market capitalisation—only the top 500 companies by market value, listed on the BSE, are considered. However, inclusion is not based on size alone. Liquidity is a crucial factor, measured by trading volume and frequency, ensuring that only actively traded stocks are part of the index. The index also emphasises sectoral and industry representation, capturing India’s economic diversity by including companies from various sectors and size segments – large-cap, mid-cap, and small-cap. Additionally, eligible companies must comply with regulatory norms, have a minimum public shareholding, and meet standards of corporate governance. Newly listed companies can be included if they quickly meet the eligibility requirements.

The index is reviewed and rebalanced semi-annually to reflect changes in company performance, sectoral shifts, or significant corporate actions such as mergers or demergers. This thorough selection methodology ensures that the BSE 500 remains a reliable and dynamic benchmark, accurately mirroring the composition and evolution of the Indian equity market at large.

How is the BSE 500 index calculated?

The BSE 500 index is calculated using the free-float market capitalisation-weighted methodology, similar to other major indices. In this approach, the market capitalisation of each constituent is calculated by multiplying the company’s share price by the number of shares available for public trading (free float shares), rather than the total outstanding shares. Each stock’s weight in the index is proportional to its free-float market capitalisation, so that larger, widely held companies have a greater influence on the index’s movements. The index formula is:

(Sum of free-float market capitalisations of all 500 stocks / Index divisor) × Base value

The base value was set at 1000 points on February 3, 1999. The divisor is periodically adjusted to account for changes like stock splits, rights issues, bonus shares, or the addition and removal of companies, maintaining index continuity. The index is reviewed semi-annually and rebalanced to ensure it remains relevant to market realities. This calculation method allows the BSE 500 to serve as an accurate barometer of the performance of a wide cross-section of the Indian equity market.