BSE Launches New Long-Short Benchmarks

Last week, BSE launched the BSE 500 All Stock Futures Index and introduced plans for further long-short indices used by funds and investors using derivatives or alternative approaches. These benchmarks represent a response to the demand of specialised investment funds that run on absolute-return or market-neutral strategies, as well as other types of investment approaches that are unable to use the standard methods of measuring performance associated with traditional long-only indices.
In relation to the BSE 500 All Stock Futures Index, there will be 200 or more eligible stocks represented in this new index, based on the availability of stock futures contracts.

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New Index Developments

The BSE 500 Long and the BSE 200 Short will be the first combination of indices included in the new family of indices. BSE 500 Long and BSE 150 Midcap Short will be the second in the series. These indices will allow funds to create an effective benchmark/platform to compare their previously mismatched long-short equity strategy to standard/benchmark indices.
By constructing the BSE 500 All Stock Futures Index utilising a dynamic futures base, they will be able to maintain the benchmarks within a continuously current/present state.

Growth in Alternative Strategies

Registered specialist investment funds with SEBI have access to aligned tracking alternatives. Growth in interest for long-short equity strategy within this framework has grown significantly over the past year. With a maturing derivatives ecosystem being established, there is no better time than now for increasing the scalability of both quant-driven and fundamental-based approaches to using this investment framework.
Furthermore, recent inflows of retail mutual funds into the equity markets have resulted in an increase in the diversification needed to support their investment approaches.

Market Infrastructure Changes

Right now, the securities lending (to borrow money) market usage is low, even though it can provide relevant relative value play opportunities. The securities lending and borrowing market works with an exchange-based structure (i.e., the ability to lend or borrow through exchanges), versus the global over-the-counter market.
The new auction method of settling derivatives (contracts that allow you to purchase securities at a future date) has drawn increased attention to this product category and increased participation by Nifty Traders when Sensex options shifted expiry.
The value of the Sensex increased by almost four times between expiry reshuffle and current trading levels. The weekly options are now the most actively traded.