‘Infra index will attract foreign investors’
— Paul Hoff, Managing Director, FTSE Asia Pacific
The FTSE Group calculates and manages the FTSE Global
Equity Index series as well as domestic indices such as the prestigious FTSE
100. The Group has recently tied up with Infrastructure Development Finance
Company Ltd to form FTSE IDFC India Infrastructure Index Series.
Paul Hoff spoke to Poonam Singh. Excerpts:
Tell us about the FTSE IDFC India Infrastructure Index
This index series is based on the companies in transportation, communication,
energy resources and other infrastructure sectors listed on BSE and NSE. The
companies must generate more than 50 per cent of their revenue from
infrastructure. The minimum size of their share capital must be $75 million or
more. They must have sufficient free float to be accepted in the index i.e.
number of shares available to trade. The companies should have sufficient
liquidity to trade in the market, and their shares must be actively traded.
The index will be calculated based on their free float i.e. number of shares
available in the market. The first product based on FTSE Index will come out
shortly. Citigroup has already licensed the index to create structured products.
Citigroup has already begun marketing to Indian investment companies.
How dynamic is FTSE's infrastructure index?
We have identified 63 companies in the main index. Within the 63 companies we
have created an index of 30 companies to represent a smaller number of
companies, making it easier to make mutual funds, exchange traded funds or
structured products. To be in the 30 index the companies should have the largest
market capitalisation. The 30 index includes Reliance Communications at the top
followed by Airtel, BHEL and NTPC.
Besides, any new company that gets listed on BSE and NSE and generates more than
50 per cent of revenue from infrastructure can be included in this
infrastructure index. We will review the index every six months. With continuous
spending on infrastructure in India, the number of companies in index will
How will the FTSE infrastructure index be calculated?
The calculation of this infrastructure index will be done by determining the
free float for each of the companies. We have a research department which
analyses the shareholdings and creates the free float number. The free float
number is then used to calculate the inevitable market capitalisation of each
company, and then all the market capitalisation numbers are added up and divided
by special numerator to create the index. So everyday we are doing this
calculation in the Index movement that reflects the price movement of the
companies in the market.
How will companies in the infrastructure index benefit?
The infrastructure index is the best representation of companies listed in the
index. It will encourage foreign investors to invest in these companies and
support their share prices. It could also help any infrastructure companies to
raise funds at competitive rates. We look at the market cap size, we check the
free float, give them the liquidity test, and then we create the index. The
companies represented by the FTSE Index perform much better than the Nifty 50 or
Until now foreign investors have been using the Nifty or Sensex while investing
in India. Foreign investors feel infrastructure is one of the most important
investment areas in this country and that the performance of the infrastructure
sector is much better than the overall market represented by Nifty 50 or Sensex.
Since FTSE's information will be narrowed to only infrastructure companies, it
will give foreign investors higher transparency.
Our index covers 48 markets around the world including developed and emerging
markets. It is natural for an investor to look at developed markets like USA or
Japan which assure good returns at lower risks. Investors with higher risk
appetite would like to invest in markets with higher risks to earn more. So
markets like India and China are preferred by foreign investors. These investors
look for mutual funds or exchange traded funds that will give them exposure to
those markets. Our product looks at a theme within the Indian market and does
not try to track the general market like Nifty or Sensex, but it is tracking the
most happening market in the country, infrastructure.
Why did you introduce this index in India?
Indian infrastructure is different from the kind of infrastructure investment we
are seeing in the developed countries. Infrastructure in developed markets is
usually considered to be mature industries. Sometimes they are regulated, but
they have a steady cash flow coming out of businesses like supplying basic
services such as road and airport utilities, oil and gas etc.; these are usually
very stable industries. India is different because it has large infrastructure
requirement. When we launched the index, Finance Minister P. Chidambaram
mentioned that Indian economic growth could be higher if its infrastructure was
more developed and it was his belief that as much as 1.5 per cent of growth
could be added if infrastructure was better. I agree with him and I will take
his number any day.
So, Indian infrastructure represents a very different opportunity than is
available to an investor in USA or UK. When an investor looks at India, he or
she thinks of new spending, new projects, companies benefiting.
What are your views on the market scenario in India and China?
They are two different markets. China has been driven by selectively allowing
certain areas to develop a market economy. It is still a communist country and
is run as a socialist economy; it has exploited its coastal region and is driven
The Indian experience has been different. If you have a large working democracy
like this and are trying to develop infrastructure, there is a different set of
variables. Clearly, India has been concentrating on development of its coastal
areas and elsewhere too. Infrastructure requirement here is unique and a
challenge for any country of this size.
[13 August 2007]