What is the Nifty Pharma Index?

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Synopsis:

Nifty Pharma Index is made up of stocks belonging to the 20 largest pharma companies in the country, including Sun Pharmaceutical Industries, Cipla, Dr Reddy's Laboratories, Divi’s Laboratories, Lupin, Aurobindo Pharma, etc.

‘Nifty Pharma Index’ is a market index of the stocks belonging to some of the largest pharmaceutical companies in India. This index captures the financial health of the Indian pharma giants in one number.

So, if you have just opened a demat account and want to track pharma stocks, you should start by tracking the Nifty Pharma Index.

What is the Nifty Pharma Index Comprised of?

This index is made up of 20 pharma companies listed on the National Stock Exchange of India (NSE). The values of the Nifty Pharma Index move up and down based on how the total free float market value of the pharma stocks in this index behave. Free float market value means the value of those shares, which can be traded publicly on stock exchanges.

In this manner, this index reflects how the biggest pharma companies in India are performing. If it moves up regularly, it shows that those companies must be performing well. Conversely, if it is on a downward trend for some time, it shows those companies might not be performing well. That said, at times, stock prices go up and down purely based on sentiment and not fundamentals.

Which Stocks are the Constituents of the Nifty Pharma Index?

The Nifty Pharma Index is made up of the stocks of the following pharma companies:

  • Sun Pharmaceutical Industries
  • Cipla
  • Dr Reddy's Laboratories
  • Divi’s Laboratories
  • Lupin
  • Aurobindo Pharma
  • Zydus Lifesciences
  • Torrent Pharmaceuticals
  • Alkem Laboratories
  • IPCA Laboratories
  • Mankind Pharma
  • Laurus Labs
  • Glenmark Pharmaceuticals
  • Abbott India
  • Biocon
  • J B Chemicals and Pharmaceuticals
  • Gland Pharma
  • Natco Pharma
  • Sanofi India
  • Granules India

How to Interpret Movements in the Values of the Nifty Pharma Index?

A careful analysis of the values of the Nifty Pharma Index can reveal interesting insights. Here are a few steps that you can follow for this analysis:

  • Comparing the Nifty Pharma Index with a mutual fund focusing on pharma stocks: If you are thinking of investing in a mutual fund focusing on pharma stocks, then you should compare the performance of that fund with that of the Nifty Pharma Index over the last one year, two years, three years, and five years. If that fund is consistently underperforming in the Nifty Pharma Index, you should not invest in it. Instead of that fund, you can invest in the Nifty Pharma Index and you are likely to get better returns.
  • Comparing Nifty Pharma Index with indices focusing on other industries: Just as we have Nifty Pharma Index for pharma companies, there are indices for other industries as well, like Nifty Auto, Nifty Bank, Nifty FMCG, Nifty IT, Nifty Oil & Gas, etc. A comparison between the two indices will tell you which sector is performing better. For example, if the Nifty Pharma Index is consistently underperforming Nifty FMCG, then you need to examine the reason behind it because that can help you decide whether to invest in pharma stocks or FMCG stocks.
  • Comparing Nifty Pharma Index with Nifty: While Nifty Pharma Index comprises only pharma stocks, Nifty is made up of stocks of all prominent sectors of the Indian economy. Comparing these two indices can reveal interesting insights. For example, if the Nifty Pharma Index has outperformed Nifty, pharma companies have likely done better than the overall industrial sector in the country. But with just this insight alone, you should not jump into investing in pharma stocks because it can happen that the performance of pharma companies has already been factored into their stock prices, which means stock prices could be already high enough. That said, such kind of analysis can help you understand where the market and pharma stocks are headed.
  • Analyse the changes in the prices of stocks comprising the Nifty Pharma Index: As discussed, Nifty Pharma Index comprises 20 pharma stocks. It is a good idea to examine the movements in the prices of these 20 pharma stocks because that will show you how the performance of these companies is changing over time. At times when a company performs badly, its stock price takes a beating. It may so happen that such a stock is removed from the index and another stock is brought in. Keeping an eye on these changes can be helpful for investors.

Conclusion

Keeping track of the Nifty Pharma Index can help you examine the health of the Indian pharma sector. Besides, you can use the steps mentioned above to analyse any sector. So, if you want to invest in the share market or Nifty, start by tracking various sectoral indices of Nifty.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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