Nifty Services Sector

What is NIFTY Services Sector?

NIFTY Service Sector is a thematic index on the National Stock Exchange (NSE) which captures the performance of the services sector in the Indian economy on a real-time basis. It is constituted of 30 stocks that span 9 sectors including, Financial Services (57.72%), IT (25.60%), Power (6.43%), Telecommunication (3.85%), Oil, Gas & Consumable Fuels (2.10%), Consumer Services (1.86%), Services (1.12%), Healthcare (0.87%), and Media, Entertainment & Publication (0.46%). 

Some of the basic industries eligible for inclusion in the NIFTY Services Sector index are Airline, AMC, BPO/ KPO, Software & Consulting, Depositories & Clearing Houses, Education, Electric Utilities, E-Retail/ E-Commerce, Exchange and Data Platform, Film Production, Distribution & Exhibition, Fintech, Gas Transmission/Marketing, General Insurance, Healthcare, Hotels & Resorts, HFC, Internet & Catalogue Retail, Logistics Solution Provider, Media & Entertainment, NBFC, Power – Transmission, Shipping, Stockbroking, Telecom, Travel Related Services, Trading & Distributors, TV Broadcasting etc.

This NIFTY Services Sector index was launched with the base date of June 1, 1999, and the base value at 1000. The NIFTY Services Sector share price since inception, has breached the levels of 22,000 at ~20x P/E multiples. It is reconstituted semi-annually and caps individual stocks at 33%. NIFTY Service Sector has a variant in the form of the NIFTY Services Sector Total Returns Index.

The NIFTY Services Sector index is owned and managed by NSE Indices Limited, previously known as India Index Services & Products Limited. The Services Sector index is governed by a three-tier structure that comprises the BOD of NSE Indices, the Index Advisory Committee and the Index Maintenance Sub-Committee.

How is the NIFTY Services Sector calculated? How are stocks selected for inclusion in the NIFTY Services Sector?

The NIFTY Services Sector share price is computed by weighting its 30 stocks on the basis of periodically capped free-float market capitalization relative to a base market capitalization value on a real-time basis. 

In order to be considered for inclusion in the NIFTY Services Sector index, the securities must fulfill the following eligibility criteria:

1. Should be listed on the National Stock Exchange.
2. Should form a part of NIFTY 500.
3. 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.
4. Should be a part of the services sector.
5. 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.
6. Should have a trading frequency of at least 90% in the past six months.
7. Should have a listing history of at least six months.
8. 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.
9. 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 Services Sector 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 the NIFTY Services Sector (if any) is effective from the last trading day of March and September.