What are Sectoral Indices?

Sectoral indices are types of stock market indices that monitor the stock market performance of a specific economic sector. They can help investors gauge the performance of a given industry relative to the overall market. NSE Indices Limited, which is a subsidiary of the NSE, compiles and reviews these indices periodically.  Since they track sector-wise market performance, sectoral indices can help investors analyse the opportunities and risks of sector-themed investments. This article explains everything you need to know about NSE sectoral indices. 

Types of NSE Sectoral Indices 

The following table highlights the various Nifty sectoral indices:  

Eligibility Criteria for the Sectoral Indices 

The eligibility criteria for sectoral indices NSE are as follows:  

• A stock should be from its respective industry. For example, if a stock wants to be included in the IT index, it should be from an IT company. 
• Only those stocks are included whose FF market capitalisation is at least 1.5 times the FF market cap of the smallest constituent of their respective index. 
• A stock is generally required to be part of the Nifty 500 index at the time of review. 
• The free-float (FF) market capitalisation method is used to finally decide which stocks will be included in an index. For this purpose, stocks are ranked in descending order of their average FF market capitalisation. 
• If the number of qualifying stocks within the Nifty 500 index is less than 10, the remaining number of shares would be selected from the top 800. 
• For the Nifty Bank Index, only stocks that are allowed to trade on the futures & options (F&O) segment will be considered to form the Index. For other sector indices, stocks that trade on NSE F&O segments will preferably form a part of the Index. 
• If the number of eligible stocks is still less than 10, the remaining stocks would then be picked from the top 1000 stocks, the top 1100 stocks, the top 1200 stocks, and so on. 

How Can You as a Retail Investor Trade in Sectoral Indices? 

Here is how a retail investor can trade in sectoral indices. 

1. Through ETFs: You can also make investments by purchasing ETFs that are linked to sector-specific indices and trade them as stocks. 
2. Select Index Mutual Funds: Sector Index Funds replicate the Index structure and can be suitable for long-term investments. 
3. Buy Constituent Stocks: Investors can directly invest in those stocks which come under a sectoral index. 

Disclaimer: All investments are subject to market risks, economic conditions, regulatory changes, and other external factors. Returns are not guaranteed and may vary based on market performance and investment tenure. Investors should assess their risk tolerance and financial objectives, conduct their own research, and consult a qualified financial advisor before making any investment decisions. 

Conclusion 

Sectoral indices offer a clear view of how specific industries perform within the broader market. They help investors compare sectors, identify trends, and align investments with economic cycles. By understanding their structure and eligibility rules, investors can make more informed decisions. Sectoral exposure can be achieved through ETFs, index funds, or individual stocks using a reliable stock trading app.