Nifty Energy

What is NIFTY Energy?

NIFTY Energy is a thematic index on the National Stock Exchange (NSE) which captures the performance of the energy sector in the Indian economy on a real-time basis. It is constituted of 10 stocks that are engaged in the business of petroleum, gas and power etc. 

The basic industries eligible for inclusion in the NIFTY Energy index are Coal, Electric Utilities, Gas Transmission/Marketing, Offshore Support Solution Drilling, Oil Exploration & Production, Power – Transmission, and Refineries & Marketing.

This NIFTY Energy index was launched on July 1, 2005, with the base date as January 1, 2001, and the base value at 1000. The NIFTY Energy share price since inception, has breached the levels of 25,000 at ~11 P/E multiples. It is reconstituted semi-annually in order to ensure that it continues to reflect the changing dynamics of the Indian energy industry.

The NIFTY Energy index is owned and managed by NSE Indices Limited, previously known as India Index Services & Products Limited. The Energy index is governed by a three-tier structure comprising:

• BOD of NSE Indices: responsible for managing the index as per a detailed framework
• Index Advisory Committee (Equity): responsible for providing guidance on macro issues related to the index
• Index Maintenance Sub-Committee: responsible for the maintenance of the index’s methodology and stock selection criteria.

NIFTY Energy has a variant in the form of the NIFTY Energy Total Returns Index. This index is ideal for benchmarking fund portfolios and for launching index funds, ETFs, and other structured investment products.

How is NIFTY Energy calculated? How are stocks selected for inclusion in NIFTY Energy?

The NIFTY Energy share price is computed by weighting its 10 stocks on the basis of periodically capped free-float market capitalization relative to a base market capitalization value on a real-time basis. The index is subdivided into two components: Oil Gas & Consumable fuels (54.07%) and Power (45.93%).

For inclusion in the NIFTY Energy index, the following eligibility criteria need to be met:

1. Should be listed on the National Stock Exchange.
2. Should form a part of NIFTY 500.
3. Should have a minimum of 10 stocks.
4. If the number of eligible stocks falls below 10, then in such cases, the deficit number of stocks shall be selected from the universe of top 800 ranked stocks based on both average daily turnover and average daily full market capitalization data of the previous six months from NIFTY 500’s universe.
5. Should be a part of the energy sector.
6. New securities will be included, if their float-adjusted market capitalization is at least 1.5 times of the index’s smallest constituent’s free-float market capitalization.
7. Should have a trading frequency of at least 90% in the past six months.
8. Should have a listing history of at least six months.
9. A recently listed company (IPO) can be included if it meets the above eligibility criteria for a period of three months instead of six months.
10. Should adhere to the cap of 33% in case of a single stock and 62% for the top 3 stocks cumulatively at the time of rebalancing.

The index value is calculated as follows – 

    Index Value = Current Index Market Capitalization/ (Base Free Float Market Capitalization * Base Index Value)

Where,

Current Index Market Capitalization = Shares o/s * IWF * Capping factor * Price 

IWF (Investible Weight Factors) = 1 as it is based on market capitalization method 

The NIFTY Energy index is rebalanced semi-annually based on six months of data, with the cutoff date being January 31 and July 31 of each year. The replacement of stocks in NIFTY Energy (if any) is implemented on a quarterly basis and is effective from the last trading day of March, June, September, and December after giving four weeks prior notice to the market.