A Dedicated Shipping Index - Curtain Raiser

Blogger - Prasenjit Gangopadhyay

In the ‘India Inc Investing: a mid-year report 2008’ released by the Assocham in mid September; ports and shipping industry sectors were found to be among the most unattractive for Indian investors. It was found that FDI and PE inflows into these sectors as well as retail and FII trade volumes in the stocks were remarkably low. The reason identified were the usual policy and taxation issues, volatility etc. However, industry leaders, including INSA, were of the opinion that having a separate shipping index on the key bourses was likely to increase investor interest in stocks. This could also lead to more visibility and therefore help in attracting investments.

Whether such an index would actually lead to increased visibility and in turn attract investments needs to be determined. And historical analysis is as good a tool as any. So, an index of shipping, shipbuilding and other maritime companies was conceived, in the same model as Sensex, to see how the index would have performed against the market.

For the readers who are unfamiliar with the market index here is a brief overview. The market indexes (Ex, SENSEX, NIFTY50 etc) give an overall picture of the markets’ performance. They reflect the performance of a select group of shares chosen from across industry verticals and capitalization(s) (to accurately reflect the market), weighted by the respective number of shares available for trade in the secondary market. So if the representative index goes up, it can be inferred that in general the share values went up. For a more detailed picture please visit this webpage. I intend to follow a similar approach to determine the shipping index.

The proponents of capitalism have also upheld the efficiency of the market to incorporate developments and expectations. Though it is too soon to predict the efficiency of the proposed index to do so, over the months the index might be expected to predict the course of the maritime industry in the country.

One of the other benefits mentioned by the INSA officials in developing a shipping index was the ability to generate investments. While, the role of an index in attracting investments is not clearly defined, one can compare monthly FDI inflows in the market to that in the maritime industry for similar growths and determine if there is a significant difference in the behavior historically. This should at least let one determine correlation the maritime industry in India has with the market.

Over the next few posts, this column will be defining the shipping index, determining the benchmarks, identifying the companies that should go into the index and provide the comparative performance of the shipping index with respect to the market (Sensex). I invite you all to provide suggestions to make the index more robust.

So keep your glasses ready, we will be “breaking the bottle” next time!!