“BSE Smallcap Index” — The most unique Greed and Fear index in the world.
Why? Because it breaks all the standard rules of index construction. Here is a breakdown of its selection, characteristics, and why it is a crucial market gauge.
1) The Entry Criteria – The Small Backbenchers.
- Represents the bottom 15% of BSE’s total Market Cap.
- No upper cap on the number of stocks.
- Not an exclusive Top 30, Top 50, Top 500 club.
It has 1227 stocks.
2) No Discrimination
- 1227 stocks changed annually with quarterly reviews.
Topmost Weight is only 1.63% with only 1 stock above 1% weight.
No single stock can really drive the trend.
It’s normal for it to have 700-1300 stocks.
3) Widely Spread
- It captures the full spectrum: • Mean: ₹6,165 cr • Median: ₹3,160 cr • Tiny: ₹99.1 cr • Giant: ₹51,400 cr
- From the micro-caps to Mid-caps.
- As per SEBI, any co below 33k cr Mkt cap is Smallcap !!
Only 3 above that 33k cr.
4) Very Balanced
- No sector bloat here.
It is surprisingly well-rounded:
Consumer Disc = 22% Industrials = 21% Financials: =17% - Nifty50 has 35-38% Financials and most others above 30%.
Why watch it?
- Small caps are the Flashy Cars of the market.
Late Bull Market: They zoom the fastest (Max upside). Bear Market: They crash the hardest (Max downside). - Gives the best indication of Greed/Euphoria or Fear/Pessimism by looking at a single chart.
What to look for?
- Divergences with the Benchmarks Nifty50/Sensex at the peak of Bull and Bear Markets.
- Ratio Charts or Relative Strength to the Benchmarks.
You can go through this Video for a lot of examples on BSE Smallcap Divergences.
How to Strategize Across Market Cycles and Current Market View.
