Indian markets are catching up with their global peers when it comes to adopting free float market capitalisation in index construction, says Koel Ghosh, Head (South Asia), S&P Dow Jones Indices, an index provider.

“Indian markets adopted free float market capitalisation in Index construction later than its global peers. Historically Indian Indices were constructed on full market capitalisation,” she said.

Ghosh's comments follow the proposal in the Union Budget to increase minimum public shareholding in listed companies to 35 per cent, from 25 per cent at present. The proposal is being examined by markets regulator Securities and Exchange Board of India (Sebi).

The average free-float for the top 50 Indian companies is slightly over 50 per cent, which is much lower than developed markets like the US and Germany, which have above 85 per cent free float.

“Globally, free float is not constrained. If you constrain free float, we believe it is not representative of the market,” said Ghosh.

On the proposal to cap sector weight in benchmark indices, Ghosh said that should be a call taken by the product provider, depending on the various factors. “An index should represent the market. If the product provider is of the view that one particular sector has over-exposure or has a risk element, then the weight should be capped in the product. It has to be the product provider's call."

In May, stock exchanges had floated a discussion paper proposing to cap sectoral weightage in the benchmark index. The move had come after certain participants had expressed concerns over growing weight of the financial sector in benchmarks Sensex and Nifty.

Ghosh said she would not make a judgement on whether the weight of financial sector in the benchmark indices was disproportionately high, saying, instead, that it was just a representation of the market. She added that environment, sustainability and governance (ESG) investing was seen gaining traction.

“Factor indices are something which we are keen on working with clients. We currently have low volatility, momentum, quality and value. We would like that to pick up,” she said.

Ghosh said she expects exchange-traded fund (ETF) investing to grow in India. “A few years back, we had just four or five products. Today, we are sitting at 78. I am seeing more and more interest for ETFs on the ground. The government's push is also helping it,” she said.