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New Indices

In 2008, two new indices are expected to be launched. Both indices have been given the go ahead by SEBI. Here's more about the Volatility Index and the Dharma Index

The New Year has set in and is bringing with it a lot of new things. Amongst many events in the financial sector - like the Reliance Power IPO and the market crash - 2008 may well see the launch of two new indices. They will not be sector indices like the recent Power Sector index. We are talking of a Volatility Index and the Dharma Index.

The Volatility Index will be launched by the Bombay and National Stock Exchanges. The exchanges have been given a green signal by the market regulator, Securities & Exchange Board of India (SEBI), to go ahead and launch the index. At the same time, SEBI has also given the exchanges a free hand to decide whether they want to adopt a global model for this index or develop their own model. The Volatility Index, along with Futures and Options on it, was a recommendation by the SEBI-appointed Derivatives Market Review Committee (DMRC), headed by Prof. M Rammohan Rao.

The Volatility Index will measure market expectations of near-term volatility conveyed by the prices of stock index options or a basket of options on stocks. Don't worry if you can't figure out what that means. According to a SEBI circular, a detailed methodology of the Volatility Index would be distributed by exchanges for the benefit of investors.

The other index that may come up this year is the Dharma Index. This one is targetted at Hindu and Buddhist investors. The Dharma Index is being developed by Dow Jones and a private investment company, Dharma Investments (hence the name). The stocks in this index will be screened on the parameters of environment and corporate governance. The environment screens will take into consideration factors like emissions by the company and waste management measures while the corporate governance screens will consider factors like labour relations, industrial disputes, working conditions and wages. The constituents of this index will be reviewed on a quarterly basis. While it is not clear as to exact date of launch of these indices, one thing is for sure, the indices will give investors something to think about and provide a different angle to investing.