'Indices must be of utility to investors'

Alka Banerjee, is MD, Global Equity Indices Product Management, at S&P Dow Jones Indices. Her focus is to create new benchmarks for global equity markets and promoting their use amongst global clients. She speaks to Shoaib Zaman on their plans for India.

Q.What is your mandate with the BSE?

A. The joint venture has taken over all the indices of BSE and we are commercialising it in India and outside. So we have taken over the existing as well as anything new that we launch will be managed by the joint-venture.

Q. Often there is a feeling that index formation and the way it's maintained is inefficient. In India, it is said to be tilted towards the financial sector or towards companies that have a huge export market. What are your views on it?

A. I am not saying whether it's right or wrong. One has to look if the listed Indian market is tilted towards financial services. Now, if you have to buy the Indian market, you have to take an equivalent stake in percentage terms in the financial sector. I can also say that I want a diversified portfolio and hence everything should be capped to 10%. That is also perfectly alright but for that you have to decide on what you want. If I want the reflection of the Indian market then I should be prepared to invest a similar percentage in the Indian stocks with financial services.

Q. What are the other indices that you are planning to launch? Are you also looking into growth and value index?

A. We are looking for options all the time. We are assessing the appetite and demand. What indices are best suited for investors in the market? What is going to have the maximum utility? The point is whether there is demand for such indices? Emerging markets are typically seen as growth markets. If we see that there is a real difference between the growth and/or value stocks and there is an appetite for it such an indices then we will surely bring it to the market.

Q. How do you see role of FIIs on markets and their impact on liquidity?

A. We are doing research on this aspect. It's still not complete. So at this point I cannot make too many comments on it. But broadly our research shows that FII money doesn't impact much on the performance of the market. The co-relations are not there. On liquidity, there are two things. FIIs typically come into the large blue chip, so they will be coming into the 50-60 large stocks. Second, there are defined FII limits in each stock. That itself will become the limitation on liquidity. So even if they wish to invest more, the limit will not enable them to do so.

Q. On the retail front, how is the Indian market different from developed markets? How can retail participation increase?

A. The infrastructure for retail investors is big in developed countries. There are distributors and financial advisors. There is a lot of awareness through education. There is a very broad-based equity market. In developed markets, interest rate on bank deposits is as low as 0.1%. Hence, the investor has to participate in equities. In India, too, when interest rates start coming down, people will invest more in equity markets.