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Over 2,000 companies are listed on the NSE (National Stock Exchange). In such a case, if you have to find out how the stock market is moving, you can’t go ahead and check every company’s performance, right?
Instead, a more feasible option would be to check the overall trends of the industry or sector and market sentiment towards the same. Here, sector means an area of the economy where businesses have the same or related business (activity, product, or service).
Key Takeaways
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NSE Sectoral Indices classify companies by industry, allowing investors to easily track sector-specific market movements.
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These indices serve as economic indicators, providing a clear picture of how various sectors are functioning without relying on individual companies.
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Eligibility requirements for inclusion in a sectoral index include NIFTY 500 membership and free float market capitalisation.
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ETFs and Index Mutual Funds provide retail investors with tailored sector exposure.
What Is a Stock Market Index?
Indices are economic indicators that give us a sense of whether the economy is performing well or not. And a stock market index reflects the changes taking place in the market. Similar listed stocks from the same sector are grouped together to create an index. Popular benchmark indices in India are NIFTY (NSE) and SENSEX (BSE), while benchmark indices are NIFTY 50 and BSE 100. These stock market indices help you in:
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Monitoring the market’s pattern
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Identifying trends in an industry
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Taking investment decisions
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Understanding the direction of the economy
Also Read, What is Index in Stock Market
What Do You Mean by Sectoral Indices?
The NSE oversees whether the clearing members and the listed companies are abiding by the rules and regulations implemented by SEBI and the exchange. NSE Indices Limited, a subsidiary of NSE, provides these indices and index-related services for the capital market. The company is responsible for the NIFTY indices of NSE. It consists of broad-based indices, thematic indices, sectoral indices, customized indices and strategy indices.
The sectoral indices represent specific sectors and give benchmarking data of those sectors in the market. For the purpose of sectoral indices, various sectors identified are energy, healthcare, automobile, consumer products, IT, telecom, and financial. Let’s understand this with an example - Bank NIFTY in NSE's sectoral indices represents the overall performance of the Indian banking sector. Sectoral indices are reviewed on a semi-annual basis, ending in January and July.
Types of NSE Sectoral Indices
While NSE follows a detailed industry classification system, its sectoral indices are designed for investment and benchmarking purposes. Currently, NSE offers 19 sectoral and sub-sectoral indices, which are explained in the table below.
|
Index |
Sector |
Description |
|
Nifty Auto Index |
Automobile |
Tracks the performance of the automotive sector, including manufacturers of cars, trucks, and bikes. |
|
Nifty Bank Index |
Banking |
Measures the performance of the banking sector, including major public and private sector banks. |
|
Nifty Financial Services Index |
Financial Services |
Captures the performance of financial services companies, including banks, insurance, and other financial institutions. |
|
Nifty Financial Services 25/50 Index |
Financial Services |
Captures the performance of the financial services sector while limiting concentration risk by capping individual stock weights at 25% and the combined weight of the top three stocks at 50%. |
|
Nifty Financial Services Ex-Bank Index |
Financial Services |
Represents the financial services sector excluding banks, focusing on NBFCs, insurance companies, etc. |
|
Nifty FMCG Index |
FMCG |
Reflects the performance of the fast-moving consumer goods sector, including food, beverages, and personal care products. |
|
Nifty Healthcare Index |
Healthcare |
Tracks the performance of the healthcare sector, including pharmaceuticals, hospitals, and diagnostics. |
|
Nifty IT Index |
Information Technology |
Represents the performance of the IT sector, covering software and IT services companies. |
|
Nifty Media Index |
Media |
Measures the performance of the media and entertainment sector, including TV, radio, and publishing. |
|
Nifty Metal Index |
Metal |
Captures the performance of the metal sector, including producers of steel, aluminum, and other metals. |
|
Nifty Pharma Index |
Pharmaceuticals |
Tracks the performance of the pharmaceutical sector, including drug manufacturers and biotech firms. |
|
Nifty Private Bank Index |
Banking |
Focuses on the performance of private sector banks in India. |
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Nifty PSU Bank Index |
Banking |
Measures the performance of public sector banks in India. |
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Nifty Realty Index |
Real Estate |
Represents the performance of the real estate sector, including companies involved in property development. |
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Nifty Consumer Durables Index |
Consumer Durables |
Tracks the performance of the consumer durables sector, including home appliances, electronics, and more. |
|
Nifty Oil and Gas Index |
Oil and Gas |
Reflects the performance of the oil and gas sector, covering exploration, refining, and distribution companies. |
|
Nifty MidSmall Financial Services Index |
Financial Services |
Focuses on the financial services sector within mid and small-cap companies. |
|
Nifty MidSmall Healthcare Index |
Healthcare |
Captures the performance of mid and small-cap companies in the healthcare sector. |
|
Nifty MidSmall IT & Telecom Index |
IT & Telecom |
Represents the performance of mid and small-cap companies in the IT and telecom sectors. |
Eligibility Criteria for the Sectoral Indices
The conditions for companies to be considered for inclusion in NIFTY sectoral indices are:
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Companies should be a part of NIFTY 500 at the time of index reviewing or rebalancing.
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A minimum 10 number of stocks should be within the index
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If the number of eligible stocks falls below 10 from NIFTY 500, then the remaining number of stocks shall be taken from the universe of stocks ranked within the top 800. This selection will be done on the basis of average daily turnover and average daily full market capitalisation of the previous 6 months of data that was used for index rebalancing of NIFTY 500
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Final selection of the companies will be based on the free-float market capitalisation after arranging them in descending order
How Can You as a Retail Investor Trade in Sectoral Indices?
You can invest in any sectoral indices by purchasing Exchange-traded Funds (ETFs) or Index Mutual Funds. Your investment decision can depend on the prospective growth of that particular sector.
Conclusion
This segregation of markets into specific sectors helps investors carry out a detailed analysis of the economy and helps in understanding how the economy is performing and how a particular sector is performing. Apart from this, it also helps in setting up benchmarking data for certain sectors or industries.
