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Curious about what nifty sectoral indices are? Find out how they can be your roadmap in the stock market.
Just like a restaurant menu helps foodies focus on their favourite type of food, sectoral indices can guide you in the vast and complicated world of stock markets. Let’s dive into nifty sectoral indices and find out how they can be a game-changer for your investment journey.
What are sectoral indices?
Sectoral indices act like a spotlight focusing on a specific part of the stock market, like healthcare, technology, or finance. These indices give a quick snapshot of how well or poorly a particular industry is performing.
Sectoral indices offer streamlined overviews and comparative metrics focused on particular industries or sectors. These indices allow investors to gauge the performance of individual stocks in relation to their respective sectors.
Examples of sector indices include those for Energy, Services, Healthcare, Consumer Products, Industrial, Materials, Utilities, Technology and communications, and Financial sectors.
Both NSE and BSE offer their versions of sectoral indices, commonly referred to as NSE sectoral indices and BSE sectoral indices. These are your go-to indices if you’re interested in investing in specific sectors.
Understanding nifty sectoral indices
Nifty sectoral indices are a part of the National Stock Exchange (NSE). These indices represent various economic sectors such as automobiles, healthcare, technology, and many more.
Following the nifty sectoral indices helps you understand which sectors are currently hot and which are not.
Exploring the different nifty sectoral indices
- Nifty auto – Focuses on the automobile sector. Think cars, motorcycles, trucks, and even the parts that make these vehicles. This index can have a maximum of 15 companies.
- Nifty bank – Index for the banking sector. It might include up to 12 different banks.
- Nifty consumer durables – Companies that produce goods like washing machines, refrigerators, and air conditioners. It’s a specialised focus on how consumer electronic goods companies are doing.
- Nifty FMCG – Nifty FMCG index gives you a snapshot Fast-Moving Consumer Goods
sector and how companies making everyday products like toothpaste, soap, and food items are performing.
- Nifty IT – Index for the IT sector to keep a tab on how IT companies in are performing.
- Nifty media – Index for companies in the media and entertainment sectors. This could include firms involved in broadcasting, publishing, and even online media.
- Nifty metal – Metals and mining are fundamental to many other industries, and Nifty Metal helps you gauge how this sector is performing.
- Nifty oil & gas – Provides a lens into how companies in the oil, gas, and petroleum sectors are performing.
- Nifty pharma – The Nifty Pharma index gives you insights into how the major pharma companies are doing.
- Nifty PSU bank – This index focuses on public sector banks, providing insights into how our government-run financial institutions are performing.
- Nifty private bank – The Nifty Private Bank index gives you a snapshot of how private-sector banks are doing. Banks like ICICI and Axis fall under this category.
- Nifty realty – The Nifty Realty index is a key indicator of how the real estate sector is performing.
- Nifty financial services – The Nifty Financial Services index looks at insurance companies, non-banking financial companies, and other firms that make the financial world tick.
- NIFTY financial services 25/50 – This index is a variant of the Nifty Financial Services index. It is a capped index and no single stock can have a weightage of more than 25%, and all stocks with an individual weight greater than 5% cannot exceed 50% of the total index.
- NIFTY healthcare – It is designed to capture the behaviour and performance of companies in the healthcare sector, including pharma, healthcare providers, equipment manufacturers and more. It encompasses a maximum of 20 companies and uses a base value of 1000 points, with the base date being April 1, 2005.
How to use sectoral indices?
- Keep an eye on trends: Check whether the index is moving up or down over time. An upward trend usually indicates a healthy sector.
- Compare and contrast: Use the nifty sector-wise indices to compare the performance of one sector with another.
- Look for opportunities: A declining sector might offer low-priced buying opportunities, while a growing sector may present chances for quick gains.
- Diversify: Don’t put all your eggs in one basket. Use sectoral indices to help you spread your investments across different sectors.
- Stay updated: Indices are reviewed semi-annually, using data from the previous six months.
To be part of a nifty sectoral index, companies must meet specific criteria, which may include:
- Being a part of the Nifty 500 index.
- Belonging to the relevant industry universe.
- Having a certain minimum number of shares.
- Having a minimum free-float market value.
Understanding nifty sectoral indices is like having a treasure map in the complex world of investments. They provide insights, guide your decisions, and could significantly improve your investment outcomes.
As of 31 August 2023, NSE had around 350 indices, including sectoral and non-sectoral indices. Apart from sectoral indices, NSE also has indices based on themes, market capitalisation, etc.
While sectoral indices categorise companies according to their sectors, thematic indices categorise companies according to their themes. Companies falling under different sectors may fall under the same theme. For example, NIFTY Commodities reflects companies in the oil, cement, power sector, etc.
Indices are calculated based on the market capitalisation of companies. The market capitalisation is compared to the base value to arrive at ranks and the index value.
NIFTY stands for National Stock Exchange Fifty. NIFTY is a benchmark index in itself and shows the performance of the top 50 stocks listed on the National Stock Exchange.
Investors can invest in sectoral indices using index funds. Exchange-traded funds and mutual funds are popular ways of investing in an index.