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Complaints prompt Stock Exchange to think again on membership of IT index

The Stock Exchange is to reconsider the membership of its new information technology index following complaints from companies who have been left out. At least three firms are writing to FTSE International, the agency which administers the Exchange indices, to argue for their inclusion in the sector.

Meanwhile, the committee which considers sector classifications is to review the definition of the sector when it next meets in March. The current definition includes IT consultants and software distributors, but leaves out manufacturers of computer hardware. This means that Psion - the hand- held computer maker which is arguably Britain's most successful hi-tech company - is not part of the index.

This has surprised investors, since the original reason for setting up the sector was to help international investors spot British high-tech firms. "I don't think it's been terribly well thought through," one observer remarked.

Videologic, the computer chip designer which has also been excluded from the index, plans to press its case with FTSE International. "The key is to include companies who create intellectual property," said the finance director, Trevor Selby. "We think we're prime candidates."

Other companies which want to be part of the index are computer memory distributors Ideal Hardware and Datrontech. Advisers to both companies are planning to submit applications for them to join. FTSE International admits that the sector was created in a hurry. "We wanted to do something before the end of the year," a spokesman said. Due to the pressure that adjustments put on financial information providers, sectors are only reviewed once a year.

FTSE International is keen to change the definition of the sector to include firms like Psion. But it wants to do so without including manufacturers which assemble imported components. "The definition needs to be kept fairly tight," the spokesman said. Even though share prices in the index's members have risen sharply since its creation was announced, not all companies are desperate to join. The IT recruitment firm CRT, which was also left out, is dismissive.

Karl Chapman, the chief executive, said: "At the end of the day your share price is a function of profits and cash flow, not the stock market sector you're in."