Nifty Pharma

What is Nifty Pharma?

Nifty Pharma is a sectoral index that tracks the performance of the top pharmaceutical companies listed on the National Stock Exchange (NSE). A total of 20 stocks make up the Nifty Pharma index. So, it acts as a benchmark for the Indian pharmaceutical sector and gives investors and analysts a quick snapshot of how the industry is performing overall.

The Nifty Pharma index was introduced in July 2005, with January 1, 2001, as the base date. The base value of the index was 1,000. Now, the index is rebalanced at an interval of six months to ensure that it reflects the status of the industry accurately, with January 31 and July 31 being the semi-annual cut-off dates.

To calculate this index, the free-float market capitalisation method is used. In this method, the free-float market capitalisation, which is the total value of the shares available for public trading, is taken into account. Shares that have differential voting rights or are held by private shareholders are not considered.

A closer look at the Nifty Pharma index shows us that it is designed to capture the dynamics of the Indian pharmaceutical sector. The Nifty Pharma stocks belong to companies from various segments in the pharma sector, like drug manufacture, biotechnology and research and development.

What are the Criteria for Selecting Nifty Pharma Stocks?

Nifty Pharma stocks need to meet specific criteria set by the exchange. To be eligible to be a part of this sectoral index, the company issuing the stock must meet the following conditions:

The company should be listed on the National Stock Exchange.

The company should be included in the Nifty 500 index at the time of index review.

The company should be operating in the pharmaceutical sector.

The company should have recorded a minimum trading frequency of 90% in the previous six months.

The company should have been listed on the NSE for at least one month (as of the cut-off date when the index is reviewed).

Companies that are also traded in the derivatives segment are given preference to be included in the Nifty Pharma stock list. In the rare event that the Nifty 500 index has less than 20 eligible stocks, more pharma companies will be selected from the top 800 companies. For this selection, the average daily turnover and average daily full market capitalisation in the previous six months will be considered.

How is the Value of Nifty Pharma Calculated?

The value of the Nifty Pharma index is calculated using the free-float market capitalisation method. This is the formula used to compute the index value:

Where

Current market capitalisation = The sum of (Number of free-float shares x Current market price) for each Nifty Pharma stock.

Base market capitalisation = The sum of (Number of free-float shares x Base market price) for each Nifty Pharma stock

Base index value = 1,000

The weightage of each company included in the Nifty Pharma stock list is determined based on its free-float market capitalisation. However, no stock should have a weightage exceeding 33% and the top three companies in the index should not have a weightage exceeding 62% cumulatively.

Nifty Pharma FAQ's