Why NSE is likely to cap Nifty's sector weights

Based on a feedback, the exchange could cap a sector’s weight at 25 per cent, or align with the broader market.

The National Stock Exchange of India (NSE) is considering capping sectoral weights in the benchmark Nifty50 index, a move that could trigger a sell-off in financial stocks.

The proposal is aimed at providing more diversity and reducing the concentration of one sector.

The Nifty, considered a barometer of the Indian economy, has the representation of 13 sectors through 50 stocks.

However, financials, which include banks and non-banking financial companies (NBFCs), alone account for over 37 per cent of the index weight, exerting a disproportionately high influence on the market.

In other words, the fortune of the stock market is tied closely to the performance of financial stocks.

Experts say most popular global indices don’t have a sectoral cap, but the weight of the top sector in markets like the US, Japan and the UK is little compared to India. Also, sector weights in the developed world are more in sync with the real economy.

For instance, in the Dow Jones Industrial Average, an index of 30 large US-listed companies, the technology sector has the highest weight at 24.93 per cent, followed by financials at 21 per cent.

Similarly, the FTSE 100 index of the London Stock Exchange has technology as the biggest sector with 19.6 per cent weight, followed by consumer durables and real estate at around 15 per cent each.

Japan’s Nikkei 225 has communications and technology as the two biggest sectors with weights of 31 per cent and 28 per cent, respectively.

“The weight of financial services is at odds with the sector’s weight in the economy. It simply doesn’t have that kind of share in our GDP,” said Saurabh Mukherjea, founder and chief investment officer at

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