By Natalia Gómez and Priscila Jordão
SAO PAULO (Reuters) - Banks will become the heaviest segment of Brazil's benchmark stock index when the first revamp in the gauge's 45-year history takes effect next year, marking the rise in importance of service companies in Latin America's largest economy.
The decision by operator BM&FBovespa SA <BVMF3.SA> to rejig the index underscores investor pressure for a market gauge that better reflects Brazil's modern economy where sectors like oil and gas hold less sway than they did when the Ibovespa was set up in 1968.
The Ibovespa <.BVSP> currently includes five stocks from four different banks, with a combined weighting of about 15 percent. After the index revamp in May that share will grow to between 20 percent and 25 percent, according to simulations carried out by BB Investimentos and Quantitas Asset Management.
Itaú Unibanco Holding SA <ITUB4.SA>, Banco Bradesco SA <BBDC3.SA><BBDC4.SA>, Banco do Brasil SA <BBAS3.SA> and Banco Santander Brasil SA <SANB11.SA> are likely to get more room due to their large market value and strong trading volumes, said Marcos Fritzen, who manages more than 12 billion reais (3.43 billion pounds) at Porto Alegre, Brazil-based Quantitas.
"Banks will benefit most from this process," Fritzen said.
During the past decade, more than 40 million people joined Brazil's middle class, driving a hefty expansion in banking services and helping re-balance the influence of commodity and industrial companies.
Combined, the four banks are worth about 430 billion reais. Mining giant Vale SA <VALE5.SA> and state-run oil producer Petróleo Brasileiro SA <PETR4.SA>, currently the top-two companies in the 73-stock index, have market capitalization of 186 billion reais and 238 billion reais, respectively.
The changes to the Ibovespa index <.BVSP> will give more weight to a share's free float than its average daily trading volume, boosting the presence of large companies in the gauge and excluding companies whose shares introduce significant short- and medium-term distortions in the market.
The changes will put the Ibovespa closer to the MSCI Brazil, a favorite gauge for foreign investors seeking to trade equities in the Brazilian market, according to Walter Mendes, a partner at Cultinvest Asset Management.
"Today, non-resident investors see the Ibovespa fluctuating only with a few shares and people just don't like that. In the case of the MSCI, markets don't swing as much as the Ibovespa does," he said.
Strategists said the changes will favour companies with large market capitalization in the education, mining, financial and consumer goods sectors. Airlines and power holding companies could lose room in the index too under the changes, which will be phased in through the first four months of next year.
Consumer-related sectors will increase their participation in the Ibovespa to somewhere between 10 percent and 13 percent, from the current 8 percent. Shares in beauty-care producers, apparel makers and retailers have helped prop up the Ibovespa over the past four years, as the value of commodities and energy, steel and real estate companies plummeted.
The index is down almost 12 percent this year, after gaining 7.4 percent in 2012. In 2011 the Ibovespa tumbled 18 percent; a couple of years earlier, it had surged 82 percent.
Steelmakers will halve their weight in the index to about 3 percent from about 7 percent now, according to the estimates. Real estate companies, which for years were seen as a source of value but vastly underperformed the index over the past three years, will represent only 3 percent of the index, compared with 10 percent now.
One immediate consequence of the changes is that demand for stock options will climb, said Hamilton Moreira Alves, an analyst at BB Investimentos, the securities unit of Banco do Brasil. "A rally in the revamped index will require bigger firepower than before," he said.
According to Quantitas, some of the companies that could enter the index by May include insurance giant BB Seguridade e Participações SA <BBSE3.SA>, healthcare plans broker Qualicorp SA <QUAL3.SA>, toll road operators Arteris SA <ARTR3.SA> and Ecorodovias SA <ECOR3.SA>, as well as education company Estácio Participações SA <ESTC3.SA> and chassis producer Marcopolo SA <POMO4.SA>.
Potential exits could include OGX Petróleo e Gas Participações SA <OGXP3.SA>, the embattled oil producer controlled by tycoon Eike Batista. Calls for changes in the Ibovespa grew much louder in recent months after the weighting of OGX led to steep drops in the index.
(Writing by Guillermo Parra-Bernal; editing by Andrew Hay)