Investors are seeking diversification: Alka Banerjee
Alka Banerjee, Vice President (Global Equity and Strategy Indices), S&P Indices spoke with Puneet Wadhwa on the recently launched indices and the new products in the offing.
S&P, along with other index providers, has been moving aggressively in recent years towards formation of “strategy indexes&". What is the rationale behind this and how far has this move been successful?
We have been pushing the boundaries of traditional indexing for the last few years. What had traditionally sat in the realm of active management has moved in to the index space. If an investment strategy is rules based and transparent it can be indexicised. The value of this is the cost effectiveness and transparency it brings to market and the enhanced value it provides investors.
Investors are seeking diversification, alternate sources of beta, defined sources of income and all this requires new and innovative forms of indexing. High yield indices, low volatility indices, multiple asset indices are what investors need these days to ensure risk reduction and return enhancement.
You recently launched the ESG index that measures the environmental, social, and corporate governance practices. How difficult is it to ascertain the accuracy of information based on published reports given the possible slippages / loopholes that could exist in the regulatory environment?
Environmental, Social and Governance criteria have become increasingly important for investors as awareness about these factors has increased. Carbon footprint reduction, high standards of corporate governance, social values like equitable treatment of employees and stakeholders have gained a lot of importance for investors.
As investors demand more of this information, companies are responding and becoming more transparent in their disclosures. We see a gradual but consistent improvement in reporting around the world as well as in India.
It is not yet to the level we would aspire to but there are vast improvements and general awareness overall has improved dramatically. At the same time tools to understand the impact of these factors have also improved over time.
How has been the response to S&P 500 futures and options launched on the National Stock Exchange (NSE)? Has it picked up pace and are you happy with the response? Are there any other new products you plan to launch here in the near future?
The response has been reasonably good. We understand that these kinds of products take time to build up. We have a long-term commitment to the Indian capital markets and are prepared to invest in the education of investors. We are always open to new ideas for new products though there are no immediate plans for launching anything new. We would rather invest our resources in building up the market for the existing products.
S&P has an exclusive tie-up with the National Stock Exchange (NSE) as things stand right now. Can we see new initiatives being launched with other exchanges like MCX-SX?
Our partnership with NSE is very old and we remain fully committed to it. As of now there are no plans to start any new partnership.
The S&P/IFCI Carbon Efficient Index did quite well in the first few months of CY12 as did most emerging markets’ benchmarks. Do you think that its performance could now dip as the efforts of most companies, especially in the emerging markets, gets concentrated on keeping the core business alive and kicking?
The S&P/IFCI carbon efficient index has been designed to track the underlying S&P/IFCI emerging market index to within 1 per cent tracking error. As such, it will follow the fortunes of the parent index. The purpose of this design was that investors could get market beta returns with carbon exposure reduction in their portfolios.