How Nifty Pharma Index Expansion Will Affect Investors

While real estate investment trusts or rits And while Infrastructure Investment Trusts or InvITs will be part of the Nifty index, stocks were replaced in some of the major indexes like Nifty Next 50, Nifty 500, Nifty FMCG and Nifty IT. The changes will be effective from 30 September.

A major restructuring happened in Nifty pharma The index, which will now have 20 companies as its constituents, instead of 10 at present.

In the past one year, the Nifty Pharma Index has given a return of around 25% as compared to the 47% given by the Nifty 50 Index till August 30.

By increasing the total number of pharma shares from the earlier 10 to 20, the free float coverage of pharma companies will increase to ~90% versus ~70% at present. Additionally, the NSE index has added a rule to give preference to the inclusion of stocks available for trading on the derivatives (F&O) trading platform.

On Nippon Pharma Index being more comprehensive, Nippon Life India Asset Management Ltd Head ETF Vishal Jain said: “We think this is a very positive turnaround by the NSE Index. The objective of any index to be representative of that underlying theme What it represents. Adding more stocks to the index will enable investors in the fund to get maximum exposure to pharma as a theme.”

According to experts, there are pharma defensive and evergreen sectors with FMCG. However, he says investors in Nippon India Nifty Pharma Fund should expect some short-term shocks.

In line with the rebalancing of various ETFs that occurs regularly to align them with their respective underlying index, Nippon India Nifty Pharma ETF is also expected to rebalance accordingly so that it closely tracks the revised Nifty Pharma Index .

“Given that the universe of stocks in the underlying index has expanded, the fund may incur some additional expenses when buying these stocks. This may have some impact on its performance,” said Kavita Krishnan, senior analyst-manager research, Morningstar India. There could be a short-term transitional impact and higher turnover on the fund.

Also, greater diversification of the fund is a positive move, as it helps in reducing portfolio level risks. Krishnan said, “This is especially important when we look at thematic or sector funds. There are two ways to take a position in a sector, the passive and the active route. So, the question arises: which route, the active or Passive is better suited?

“If one wants to go for a purely pharma sectoral bet, then along with active they can look at low cost passive strategies but if one wants a mix of pharma with healthcare space, active is a better one. would be the way. The margin of profit and achieving higher returns and beating the benchmark will be very high,” said Rishabh Desai, a Mumbai-based mutual fund distributor.

However, investors should remember that sectoral funds carry more risk as they can be cyclical in nature. Investing in a single sector portfolio carries more risk than investing in a diversified portfolio. “We feel it is important to maintain a diversified portfolio and invest based on our goals,” Krishnan said.