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 Series.
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 gradually increase.
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 Sensex.
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 by manufacturing.
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.