Nifty Pharma

What is Nifty Pharma?

Nifty Pharma is a sectoral equity index created and managed by the National Stock Exchange (NSE) of India, designed to capture the performance of the pharmaceutical industry. This index comprises the top pharmaceutical companies listed on the NSE, providing a comprehensive benchmark for tracking and evaluating the Indian pharma industry’s market trends, growth, and risks. The index consists of firms involved in the research, manufacturing and distribution of pharmaceutical products such as generic drugs, active pharmaceutical ingredients (APIs), vaccines, biologics, and healthcare services.

Nifty Pharma is much followed by institutional and retail investors, mutual fund managers, and analysts looking to gauge the pulse of India's vibrant healthcare and pharmaceutical industry. With India playing such a major role as an international provider of low-cost medicines and one of the world's largest pharmaceutical exporters, the index serves as a crucial gauge of both domestic and international demand trends, regulatory developments and innovation. Nifty Pharma offers exposure to a diverse mix of established pharmaceutical giants, rapidly growing mid-sized firms, and companies with strong research and global distribution capabilities.

The index is reviewed and rebalanced semi-annually to ensure it accurately mirrors the latest industry developments and continues to provide investors like you with a reliable tool for sectoral analysis, investment benchmarking, and portfolio diversification within the fast-evolving Indian pharmaceutical landscape.

Nifty Pharma stocks selection criteria

The selection process for the Nifty Pharma index is governed by clear, transparent, and stringent criteria to ensure the index remains representative of India’s leading and most actively traded pharmaceutical companies. To be eligible for inclusion, a company must first be classified under the pharmaceutical sector as per the Industry Classification Benchmark (ICB) and be listed on the National Stock Exchange.

The stock must also be part of the Nifty 500 universe, which includes the top 500 Indian companies by market capitalisation and liquidity. From this broader universe, stocks are evaluated based on their average free-float market capitalisation over a six-month period, with only those having the largest values making the cut. Free-float market capitalisation factors in only those shares available for public trading, excluding those held by promoters, government, and strategic investors. Liquidity is another crucial selection parameter; companies must meet minimum trading frequency and average daily turnover requirements during the review period to ensure ease of entry and exit for investors.

The Nifty Pharma index typically consists of the 20 most liquid and prominent pharmaceutical companies, with its composition reviewed and rebalanced semi-annually. This disciplined selection process allows the index to remain current and responsive to shifts in the market, ensuring it consistently reflects the performance of the Indian pharmaceutical sector’s top performers and emerging leaders.

How is the Nifty Pharma index calculated?

The Nifty Pharma index employs a free-float market capitalisation weighted methodology to ensure that each constituent’s influence on the index is proportionate to its market value available to public investors. The calculation begins by determining the free-float market capitalisation of each constituent, which is calculated by multiplying the latest traded stock price by the number of shares freely available for trading (excluding promoter and government holdings).

The sum of the free-float market capitalisations of all constituent stocks forms the total market value for the index. This sum is then divided by a base market capitalisation, a fixed value set at the index’s inception, which is adjusted for any corporate actions such as stock splits, bonus issues, rights issues, or changes in the list of constituents. The formula for the index value is:

Index Value = (Sum of Free-Float Market Capitalisation of All Constituents) / Base Market Capitalisation × Base Index Value (usually 1,000)

Corporate actions are carefully factored in to ensure that such events do not cause artificial fluctuations in the index value. The Nifty Pharma index is calculated in real time using the latest prices of its constituents and is reviewed and rebalanced semi-annually to maintain its relevance and accuracy. This robust calculation approach ensures transparency, reliability, and an accurate representation of the Indian pharmaceutical sector’s performance.