Analysing the ever-changing Nifty weights

Market indices such as Nifty and Sensex have been used as a barometer to measure the overall market performance in India for years now. But as we have witnessed from our own experiences, not only are the markets dynamic but so are the indices used to measure them. The sectors driving the market keep changing over different time periods. Different sectors perform differently in varying market conditions, thereby resulting in erratic stock performances. This also causes continuous changes in the weightage of various sectors in indices like Nifty that are free-float market capitalisation indices.

In the six years from March 2014 to May 2020, the weightage of various sectors has changed dramatically in Nifty. During this period, the weight of financial services, consumer goods and telecom has increased. Financial services which contributed about 27.45 per cent of Nifty in March 2014 have increased their contribution to about 33.33 per cent as of May 2020. This is still lower than what it contributed in March 2019 that is, 38.85 per cent. 

Consumer goods have seen an increase of 78 bps from 12.63 per cent in March 2014 to 13.41 per cent in May 2020. Telecom contribution has increased from 1.68 per cent to 3.59 per cent during this period. Few sectors like IT, construction, automobile and pharma have seen a fall in weightage during this time period. IT weightage decreased from 16.34 per cent to 14.66 per cent, automobile weightage has decreased from 8.82 per cent to 5.54 per cent, and construction weightage has witnessed a drop from 4.97 per cent to 2.89 per cent while pharma weightage decreased from 5.23 per cent to 3.35 per cent.

An interesting fact to note from these observations is that the data reflects that not all sectors are given the same importance by the market all the time. At any point in time, there are a few "hot sectors" which in some way command more attention in the markets and thereby carry an increased weightage in indices like Nifty, but their placement changes with time and so does the weightage attributed to them.