S&P/CSE Sector and Industry Group Indices to enhance CSE’s visibility
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At the event
The Colombo Stock Exchange (CSE) and S&P Dow Jones Indices jointly launched 31 S&P/CSE Sector and Industry Group Indices on Wednesday with CSE officials saying that this will showcase the local stock market and increase visibility. CSE Chairman Vajira Kulatilleke noted that this move will lift the CSE to being a regional player, adding: “We are excited to elevate the visibility of the Sri Lankan equity market through the launch of this benchmark series by leveraging S&P Dow Jones Indices’ expertise in index development and governance.” According to him, this partnership would put Sri Lanka on the global map as the CSE adheres to Global Industry Classification Standards (GICS).
The GICS was jointly developed in 1999 by Morgan Stanley Capital International (MSCI) and standard and Poor’s (S&P) with a view to fulfilling the requirement of the global investment community for a reliable, standard industry classification system. S & P and MSCI jointly assign a company to a single GICS sub-industry according to the definition of its principal business activity. Revenues are a significant factor in determining principal business activity; however, earnings analysis and market perception are also important criteria for classification in case where revenue analyses do not provide a clear direction. As such, only public information is used so that anyone can replicate the assignment.
“For international investors, it is difficult to find out what standard or what category a particular company is in; we may categorise a company as manufacturing because it’s manufacturing food, however internationally it could be classified under food. Therefore classification is essential for diversification purposes.” Dow Jones Indices South Asia Business Development Director Koel Gosh said at the launch that this move is slated to move the Sri Lankan market to global norms and open up the market to more investors. “There was a crying need to have a universal language to invest as an individual can be investing on the same stock with different definitions.
GICS was the solution for that. GICS is a progressive classification, which is based on client consultation; there is active change that keeps on happening.” The S&P/CSE Sector and Industry Group Indices were developed based on the universe of common stocks listed on the CSE. Featuring a transparent, rules-based methodology, all indices are weighted by their total market capitalisation. The index family includes sector indices, which are further divided into industry group indices on energy, materials, industries, consumer discretionary, consumer staples, health care, financial sector, information technology, telecommunications and utilities, etc.
The GICS structure consists of 10 sectors, 24 industry groups, 67 industries and 156 sub-industries into which S&P has categorised all major public companies. S&P DJI and CSE started their collaboration in 2012 when they jointly introduced the S&P Sri Lanka 20, an investible index comprised of the 20 largest and most liquid stocks listed on CSE. The launch of this latest index series signifies the deepening relationship between the two parties and S&P DJI’s significant expansion in Sri Lankan.