The country's largest economic research and rating agency Crisil today launched an index for government securities - Crisil Gilt Index, which will provide the market a realistic benchmark to analyse and measure the performance of sovereign investments.
"The Crisil Gilt Index provides an appropriate representation of the movement of yields in government securities. The government securities (G-secs or Gilts) included in the index are the most liquid, and typically represent 80% of the total trading volumes and 25% of the total amount outstanding," Crisil Research Senior Director Mukesh Agarwal said here in a release.
This is the eighth index introduced by Crisil and reflects the S&P-owned agency's ongoing effort to develop effective benchmarks for the domestic debt market, which is dominated by G-secs with over three-fourths of the total debt outstanding as of last month, he said.
The index comprises 12 most liquid G-secs, he said and added that even in terms of trading activity, G-secs are the most liquid and contribute over 80% of volumes.
For the construction of the index, Crisil adopted a two-fold approach based on liquidity and amount outstanding, Agarwal said.
The selection of G-secs is based on liquidity, while allocation of weight is based on the amount outstanding. The index is then calculated using a total return approach, capturing both coupon and clean price returns for the selected G-secs across maturities.
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The base date of the index is January 1, 1997, he added.
Crisil Research Director (Capital markets) Tarun Bhatia said: "The index is expected to serve both as a benchmark and as an underlying index for investment products such as exchange-traded funds [ETFs] in Gilts."
The index, which will be a public index, is rebalanced on a monthly basis, on the first day of every month and its constituents are based on the trading pattern of G-secs during the last one month.
The liquidity scores are assigned to each security on the basis of volumes traded (50%), days traded (33%) and the number of trades (17%).
Surrogate bonds such as Food Corporation of India bonds, oil bonds, fertiliser bonds and UTI special bonds and the floating rate bonds are kept out of the purview of the selection process since these are quasi government bonds.