The Indian bourses are debating whether to shift the index calculation methodology from market capitalization to the internationally popular free-float method.

With the visit of FTSE Chief Executive Mike Makepeace to Mumbai to attend the round table conference on free-float, the debate on whether the Bombay Stock Exchange (BSE) should adopt this methodology of index construction is gaining momentum.

Why is the BSE thinking of this change when its indices are widely accepted by the market players? The answer is not too far to see. Globally, the concept of free-float methodology for calculating the index weights has become popular among major stock exchanges. FTSE has already adjusted all companies in its indices to the free-float from June 2001. MSCI would fully move to free-float by June 2002. Others like IBEX, AEX, BEL, DAX, CAC are seriously considering the free-float. Even in India, the free-float methodology has been used earlier in the construction of BSE-TECK, an index for technology, entertainment, communication and other knowledge-based sectors. It was launched on July 11, 2001, and was appreciated by all the market participants.

Dow Jones Indexes and Stoxx Ltd. were the first of the major index providers to move to free-float. The Dow Jones Global Titans 50 index was launched as a free-float index on June 18, 2000. The entire Dow Jones Global Index familyincluding the pan-European Dow Jones Stoxx indexes moved to free-float capitalization on September 18, 2000. Analyst (November 2000) had earlier carried an article on free-float, "Stock Market IndicesFloat and Flash" when major global stock indices were readjusted for free-float.

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