Differential Voting Right shares such as Tata Motors DVR, Jain Irrigation Systems DVR and Future Retail DVR on Thursday rallied after the BSE announced new norms for considering differential voting rights shares in the indices, including Sensex and BSE 100.

S&P BSE Indices, which publishes benchmark equity indices for the BSE, on Wednesday after market hours, disclosed the rules on the inclusion of shares with differential voting rights (DVRs) on the S&P BSE Sensex, BSE 100, BSE 200 and BSE 500 indices.

Tata Motors DVR shares jumped 6.5 per cent at Rs 373.3 even as the underlying Tata Motors stock tumbled 1 per cent at Rs 577.

Similarly, Future Retail DVR shares jumped 5.6 per cent at Rs 57.65 on the BSE, while the underlying equity slipped 1.2 per cent at Rs 116.80.

The biggest gainer was, however, DVRs of Gujarat NRE Coke , which surged 8 per cent at Rs 2.95; its underlying also surged 6 per cent at Rs 5.15.

Jain Irrigation DVRs jumped 7.6 per cent at Rs 51; the underlying edged down 1.5 per cent at Rs 65.90.

DVR shares

Shares with differential voting rights are similar to common equity shares in all respects other than dividend received and voting rights.

Since DVR shareholders surrender the voting rights on their shares, companies compensate them with a higher dividend that paid to a common equity shareholder. Promoters issue DVRs to raise public funds without diluting their voting capital. DVRs generally trade at a discount to the common equity share on stock exchanges.

Index rebalance

For the upcoming index rebalance in June, S&P BSE will consider the inclusion of these DVRs if the common equity shares are already part of a certain index and if the DVR shares outstanding are 10 per cent or more of the total shares outstanding (inclusive of ordinary shares and DVR shares) of the company. The DVR will also be analysed independently to meet inclusion standards.

If the ordinary shares are dropped from the index, the DVRs will be dropped as well.

An inclusion of a DVR will increase the number of stocks in a fixed count index, such as the BSE 100, but the number of companies will remain fixed. Hence, the index, after the inclusion of a DVR, will remain BSE 100.

Analysts however caution this as initial reaction. Though today's gains in DVRs help them narrow down the steep discount with which they trade with respect to the underlying stocks, only company's fundamental will drive the future course of action, they said.