Description

BSE announces methodology changes to BSE 500 and BSE 500 Shariah indices with new constituent selection criteria and accounting screens.

Summary

BSE Index Services Private Ltd announces methodology changes to BSE 500 and BSE 500 Shariah indices. The BSE 500 index will adopt new constituent selection criteria based on ranking methodology using traded value and market capitalization, while BSE 500 Shariah will reduce its non-permissible revenue threshold from 4% to 3%.

Key Points

  • BSE 500 index methodology changes effective December 22, 2025
  • New selection criteria based on top 750 stocks ranking by annualized traded value and free float market cap
  • BSE 500 Shariah non-permissible revenue threshold reduced from 4% to 3%
  • BSE 500 eligible universe changes from BSE AllCap to BSE 1000 Index constituents
  • Target company count remains 500 with flexibility to relax criteria if shortfall occurs

Regulatory Changes

BSE 500 Index:

  • Old Criteria: Companies needed annualized traded value ≥ INR 100 crores (existing constituents ≥ INR 80 crores) and 80% trading days participation
  • New Criteria: Stocks must rank in top 750 by both annualized traded value and 6-month average free float market cap, plus 80% trading days requirement
  • Eligible Universe: Changed from BSE AllCap Index to BSE 1000 Index constituents

BSE 500 Shariah Index:

  • Non-permissible revenue threshold reduced from <4% to <3% of total revenue
  • Debt/Total Asset ratio remains <25%

Compliance Requirements

  • Index fund managers and ETF providers must prepare for rebalancing based on new methodology
  • Portfolio adjustments required to align with revised constituent selection criteria
  • Shariah-compliant funds must ensure stricter revenue compliance (3% threshold)
  • Market participants should review tracking strategies for affected indices

Important Dates

  • BSE 500 Changes: Effective December 22, 2025
  • BSE 500 Shariah Changes: Effective September 22, 2025
  • Semi-annual rebalancing: Continues as per existing schedule

Impact Assessment

The methodology changes will likely result in index composition adjustments during rebalancing periods. The stricter ranking-based approach for BSE 500 may lead to constituent changes, potentially affecting index funds and ETFs tracking these indices. The tighter Shariah compliance threshold may exclude some companies currently in the BSE 500 Shariah index, requiring portfolio adjustments for Shariah-compliant investment products.

Impact Justification

Index methodology changes affect constituent selection and could impact index composition and performance tracking