Complete Guide to Nifty Pharma Index: From Selection to Investment Process

The pharmaceutical sector has been booming in India with the country being recognised as one of the most affordable places for healthcare across the globe. India has been emerging as a hub for medical tourism especially in South-East Asia. The pharma sector has immense cost benefit in India when compared to the developed nations which is pushing the industry above. There are multiple companies which are operating in this industry and are favourites of investors because of the generous returns they offer. However, to track the entire pharma industry, the Nifty Pharma Index can be the one-stop solution. 

This article will revolve around the index, its constituents, selection criteria, investment process, returns, risks and more. 

NIFTY PHARMA Index – Overview & Constituents 

The Nifty Pharma index reflects the performance of the top 20 healthcare or pharmaceutical companies listed on the National Stock Exchange. It is a total return index which is computed on the basis of free-float market capitalization.  The index helps investors understand how the overall pharmaceutical industry is performing by analysing the performance of the twenty stocks it is constituted of. 

The nifty pharma index stocks list includes – (As of 24 January 2025)

Abbott India Ltd.	Granules India Ltd.
Ajanta Pharmaceuticals Ltd.	Ipca Laboratories Ltd.
Alkem Laboratories Ltd.	J.B. Chemicals & Pharmaceuticals Ltd.
Aurobindo Pharma Ltd.	Laurus Labs Ltd.
Biocon Ltd.	Lupin Ltd.
Cipla Ltd.	Mankind Pharma Ltd.
Divi’s Laboratories Ltd.	NATCO Pharma Ltd.
Dr Reddy’s Laboratories Ltd.	Sun Pharmaceutical Industries Ltd.
Gland Pharma Ltd.	Torrent Pharmaceuticals Ltd.
Glenmark Pharmaceuticals Ltd.	Zydus Lifesciences Ltd.

The top ten stocks by weightage – 

1. Sun Pharmaceuticals Industries Ltd. – 24.74%
2. Dr. Reddy’s Laboratories Ltd. – 10.29%
3. Cipla Ltd. – 10.21%
4. Divi’s Laboratories Ltd. – 9.41%
5. Lupin Ltd. – 6.90%
6. Aurobindo Pharma Ltd. – 4.53%
7. Torrent Pharmaceuticals Ltd. – 3.83%
8. Alkem Laboratories Ltd. – 3.63%
9. Mankind Pharma Ltd. – 3.63%
10. Zydus Lifesciences Ltd. 2.95%

Selection Criteria

The stock selection criteria for the equity index Nifty Pharma index include – 

• During the review, the company under review must be a part of the Nifty 500 universe
• If the eligible stocks from the healthcare sector of the nifty 500 universe fall short of 20 then the remaining stocks can be taken from the top 800 stocks ranked in the Nifty universe as per daily average turnover and average daily full market capitalization of the preceding six months of Nifty 500 rebalancing date. 
• Undoubtedly all the stocks have to be from the pharmaceutical industry
• The companies whose stocks are being picked must have been traded at least 90% time in the previous six months
• The company must have been listed one month before the cutoff date

Factors Affecting the NIFTY PHARMA Index

The factors which affect the Nifty Pharma index are – 

• Research and development: One of the most crucial factors that determines the pharmaceutical sector’s performance is how much research and development is being carried on in the industry. With the introduction of new drugs, share prices jump usually while if any drug fails, the stocks drop. Thus, this factor plays a pivotal role in moving the index on either side. 
• Demand and supply: The next important factor that affects the index is the demand and supply ratio. If the demand for pharmaceutical products suddenly skyrockets, like in the case of an epidemic or pandemic, then the stocks of the pharma companies also rise which in turn takes the index value up and if supply is more than the demand, then the opposite scenario takes place as stock of medicines and other pharma products piles up leading to losses. 
• Government Intervention: This sector is highly regulated for all the right reasons and thus any changes in the government policies for this sector can make a significant impact on the stock prices, and thus the index value as well. 

NIFTY PHARMA Index Calculation Method

For the Nifty Pharma index, the stocks are selected based on periodic capped free-float market capitalization. 

• After the selection procedure, the final choice of 20 stocks depends on the free-float market capitalization. Stocks available on the futures and options segment are given preference for final selection. 

• The current market price of the 20 stocks of the index is multiplied by the number of free-float shares, which excludes shares held by promoters, government, trusts, etc. This results in the weighted market cap of the stocks.  
• Then weighted market capitalization of all 20 stocks is taken into account and summed up. For assigning weights, it is taken into account that no individual stock should have a weight of more than 33% and the top 3 stocks’ weights combined must not exceed 62% during the time of rebalancing. 
• Then the result is divided by the base period market capitalization to derive the index value. 

Nifty Pharma Index Value =  (Weighted Market Cap/ Base Market Cap) *1000

Performance and Returns

Here are the returns for different periods – 

Price Returns

Since Inception: 14.03%

YTD: 39.10%

1 Year:  39.10%

5 Year: 23.83%

QTD: 0.50%

Total Returns

Since Inception: 15.05%

YTD: 40.03%

1 Year:  40.03%

5 Year: 24.75%

QTD: 0.52%

Enjoy investing in the top stocks of the Nifty 500 universe with the Nifty Pharma index on Shoonya App!

Risk and Volatility

Since Nifty Pharma is investing in a single sector which is healthcare, the diversification is less however, since the index is made of twenty stocks, the risk is spread out but cannot be ignored. 

The standard deviation of the index for 1 year stands at 14.63% while that for 5 years stands at 19.58% and since inception, it is as high as 19.86%. 

The beta compared to the Nifty 50 is quite low which represents the volatility. For 1 year the beta is 0.50 which means the volatility of the Nifty Pharma index is quite lower than nifty 50. 

How to Invest in the NIFTY PHARMA INDEX?

You can invest in the Nifty Pharma Index using ETFs, or index funds, or you can trade them on the trading platform. You can also trade Nifty Pharma Index futures, and options in the F&O section of Shoonya’s app. To do so, you have to add the index to your watchlist following these steps – 

• Open the Shoonya app.
• Head to the “Watchlist” tab located at the bottom of your screen.
• In the search bar, type “NIFTY IN” or “SENSEX IN” and add it to the watch list, and then you will be able to see the indices.
• Once you find your desired index, click on the add option given on the right side.
• Now you can see the index on the watchlist. 

Conclusion

So, if you are interested in the pharmaceutical sector for investments, this index is something you need to add to your watchlist. The Nifty Pharma Index can help you track the entire market at your fingertips, and make informed investment decisions. 

Nifty Pharma Index | FAQs

Source: IBEF

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

Nifty Pharma Index