BSE readies new long-short benchmarks as SIFs and alternative strategies gain ground

markets

• BSE launched the BSE 500 All Stock Futures Index for alternative investments.
• New long-short indices are in development to better benchmark specialised funds
• Recent market changes have boosted liquidity and foreign investor participation

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BSE, India’s oldest stock exchange, has introduced a new All Stock Futures benchmark and is working on additional long-short indices to address gaps in how specialised investment funds (SIFs) and alternative strategies are benchmarked.

The exchange has already launched the BSE 500 All Stock Futures Index and is developing multiple long-short combinations aimed at funds running derivatives-led and alternative strategies, Sunil Ramkyani, chief business officer at BSE, said at the Indian Institutional Quant Conference in Mumbai on Friday.

“We already rolled out the BSE 500 All Stock Futures Index last week,” Ramkyani said, adding that the benchmark is dynamic in nature, with over 200 stocks currently eligible based on futures availability. “There are two more indices in the offing: one is BSE 500 Long and BSE 200 Short, and another is BSE 500 Long and BSE 150 Midcap Short.”

According to Ramkyani, the push is being driven by feedback from fund managers who are increasingly running long-short, market-neutral and absolute-return strategies but are still forced to benchmark performance against conventional long-only indices. “At the end of the day, everybody benchmarks against an index. These indices are getting created based on market feedback,” he said.

Fund managers said the move was a step in the right direction. “Today, as alternate asset managers registered with SEBI, we still have to benchmark against conventional long-only benchmarks,” said Rajesh Bhatia, chief investment offficer  at ITI AMC. “That creates a disconnect, because investors naturally look at benchmarks to evaluate returns. Having indices that are more aligned with the strategies we actually run will be extremely relevant.”

Bhatia, who runs a fundamental long-short strategy, said interest in SIFs has picked up sharply over the past year, driven by both taxation advantages and the growing need for uncorrelated returns.

Bhatia said while systematic inflows have supported markets, they have also increased the appeal of liquid alternatives. “There is apprehension that valuations are getting distorted by SIP flows,” he said. “At the same time, geopolitical and macro risks are rising. That has increased the need to diversify into uncorrelated, yet liquid, asset classes.”

He added that for long-short equity strategies within the SIF framework, the lack of leverage is not necessarily a binding constraint. “The tax considerations override the lack of leverage in a mutual fund structure. That’s something investors are increasingly comfortable with,” he said, noting that leverage in AIF structures often has to compensate for the tax differential.

Udit Sureka, head of products at Nuvama Asset Services, said leverage remains a powerful but nuanced tool for alternative strategies, especially as market depth and liquidity improve. “Leverage has its place, but it has to be used effectively and responsibly,” Sureka said. “Risk management and discipline are critical. Only then does leverage make sense.”

He pointed out that India’s derivatives ecosystem has matured significantly, enabling both quant-driven and fundamental long-short strategies to scale. “A lot of asset managers today come from prop trading backgrounds. What has changed is the size and scale the industry now has access to,” he said.

SLBM still underdeveloped, but changing

The panel also flagged securities lending and borrowing (SLBM) as an area that remains underutilised in India, despite its relevance for long-short and relative-value strategies.

Sureka described SLBM as a “neglected segment,” noting that India’s exchange-led structure differs sharply from global OTC lending markets. However, he said recent developments, such as market-on-close auctions and tighter physical settlement norms in derivatives, are beginning to draw more attention to the segment.

Ramkyani added to the view, saying regulators and exchanges are actively working to improve SLBM participation. “Globally, this market looks very different, but there is a clear push to align India more closely with international practices,” he said, adding that shortages on derivatives expiry days have underscored the need for deeper lending markets.

Beyond products, execution is becoming a competitive edge. Ramkyani said changes in market microstructure, especially the rise of high-frequency and institutional execution, are reshaping how liquidity is accessed.

What has surprised many market participants, he noted, is how quickly liquidity followed once structural frictions eased. Regulatory guardrails around expiries, shifts in weekly option structures and changes in trading behaviour helped pull traders and systematic players towards the Sensex.

He said recent changes to expiry schedules have also altered trading behaviour in Sensex options. After the expiry day was shifted, open interest climbed from about 17 lakh contracts to nearly 60 lakh contracts, indicating participation from traders who had earlier focused largely on Nifty. He added that weekly options now account for over 90% of index option volumes, a trend consistent with global markets, as strategies increasingly concentrate around short-dated expiries.

He noted that since June, increased adoption of smart order routing has helped attract foreign investors who earlier stayed away due to post-trade inefficiencies.

“In just two months, over 1,500 FPIs started trading because post-trade challenges were reduced,” Ramkyani said.

“We combined the top 5 bids and top 5 asks of BSE and NSE into a price-time priority to create a combined market depth. Many are not looking at this yet. As the market becomes more competitive, brokers will start marketing their efficient execution services — that’s where real cost savings come from.”