DOLLAR VERSION OF SENSEX (DOLLEX-30) TOPS EQUITY RETURNS IN ASIA
The Stock Exchange, Mumbai (BSE) continuing its thrust on introduction of new products and services launched the DOLLEX-30 on 25th July 2001. This follows another of its recent innovation of introducing BSE TECk Index, the first free float index in India. These two indices enable Indian capital markets greater cohesion and convergence with international markets in respect of products and practices.
What is DOLLEX-30
DOLLEX-30 is the dollar version of BSE Sensex, the benchmark index of equity markets in India. Similar to Sensex, the base year for the DOLLEX-30 is fixed as 1978-79 and base value at 100 points. BSE has computed historical index values of DOLLEX-30 since 1979. The scope for DOLLEX-30 emerged from the background of Indian equity markets increasingly getting integrated with global capital markets and the need to assess the market movements in terms of international benchmarks. While Sensex reflects growth in market value of constituent stocks over the base period in rupee terms, the DOLLEX-30 would reflect the changes in both the stock prices as well as currency values. DOLLEX-30 could be found useful by foreign investors to enable them to measure the equity returns in real terms both in respect of domestic and international currencies. DOLLEX-30 is the second dollar denominated index designed by the BSE. In 1994 BSE had launched DOLLEX-200, a dollar version of BSE-200 Index.
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Movement of DOLLEX-30
Sensex and DOLLEX-30 have a common base year and value. Both these indices were equal to 100 points in 1978-79. Accompanying graph shows the movement of the Sensex and the DOLLEX-30 since 1979. The vast difference between the Sensex and DOLLEX-30 in respect of points became more evident and wider in the decade of the 1990s, owing to steep depreciation of the rupee against dollar. The Re-US$ conversion rate which was about Rs.8.21 in 1980 rose to about Rs.47.15 in July 2001 showing a six fold depreciation in the last two decades. This variation also explains the wide difference in the returns from both these Indices.
At the current level of Sensex, in rupee terms the index increased around 34 times whereas in the US $ terms it increased by only 5.8 times. A foreign investor with a investment of US$1000 in India in 1979 makes US$6033 at the end of June 2001 (at an annualized return of 8.5 percent in US$ terms), where as a domestic investor with an investment of Rs.8210 in 1979 (equivalent to US$1000 in 1979) would have got a return of Rs.283802 at the end of June 2001 (at an annualized return of 17.5 percent in rupee terms).
A comparative study of returns of major emerging economy indices measured in terms of domestic currency and US$ reveals that India tops among Asian majors. The returns are compared on the basis of Sensex returns in case of India with MSCI country indices in respect of Asian countries. DOLLEX-30, dollar equivalent of the Sensex has a very high correlation of 0.96 with MSCI India Standard Index. Since January 1988 till June end 2001, returns from Sensex were to the tune of 668 percent in respect of local currency and 110 percent in US$ terms. Three of the major Asian countries namely Korea, Thailand and Indonesia in fact yielded negative returns in US $ terms during this period, where as the positive returns of Malaysia and the Philippines are much lower than the returns from India. Singapore is a major exception where the returns in US$ terms were higher than the return in local currency terms, partly because of the greater alignment of its currency with the movement of the US dollar.
A comparative study of returns of major emerging economy indices measured in terms of domestic currency and US$ reveals that India tops among Asian majors. The returns are compared on the basis of Sensex returns in case of India with MSCI country indices in respect of Asian countries. DOLLEX-30, dollar equivalent of the Sensex has a very high correlation of 0.96 with MSCI India Standard Index. Since January 1988 till June end 2001, returns from Sensex were to the tune of 668 percent in respect of local currency and 110 percent in US$ terms. Three of the major Asian countries namely Korea, Thailand and Indonesia in fact yielded negative returns in US $ terms during this period, where as the positive returns of Malaysia and the Philippines are much lower than the returns from India. Singapore is a major exception where the returns in US$ terms were higher than the return in local currency terms, partly because of the greater alignment of its currency with the movement of the US dollar.
