I am writing as an active market participant and long-term investor seeking greater clarity and guidance on the role and relevance of sectoral indices in today’s financial ecosystem. These indices appear to offer more focused insights and targeted investment opportunities compared to broad-based indices like Nifty 50 or Sensex. Should I invest?
Advice by Abhishek Jha, Fellow, Pahlé India Foundation, a New Delhi-based Think Tank
In today’s volatile economic and geopolitical climate, both investors and policymakers need sharper tools to navigate complexity and manage risk. One such underutilised but powerful tool is the sectoral stock index — an index that captures the performance of specific sectors like banking, IT, pharma, or energy. Once seen as mere benchmarks, sector indices are now emerging as core instruments for risk management, economic diagnostics, and precision investing.
In India, their significance has grown markedly in recent years. Global commodity shocks, policy shifts, and geopolitical tensions have often distorted or dulled broad indices like Nifty 50 and Sensex. In contrast, sectoral indices have shown sharper movements, helping decode the underlying story. Today, incorporating sector-level insights is no longer optional — it’s essential.
Beyond just a benchmark
Sectoral indices are baskets of stocks representing one industry. Unlike broader indices, they drill into sector-specific trends and risks. Investors can use them not only to benchmark but also to invest via ETFs and index funds, or hedge through derivatives like futures and options. This enables precise portfolio actions. For instance, a pension fund heavily exposed to banking can use Bank Nifty options to hedge interest rate risk — without impacting its entire portfolio.
When broad indices fall silent
Sectoral indices prove most valuable during macroeconomic turbulence. In mid-2025, while India’s frontline indices barely moved amid Middle East tensions, sectoral indices painted a clearer picture. Industrials slumped, but pharma and FMCG held firm. This granularity exposed hidden risks and opportunities, enabling investors to reposition with confidence.
It also benefits policymakers. Sectoral underperformance can flag areas needing regulatory attention or fiscal support. These indices aren’t just investment tools — they’re economic barometers.
Precision hedging, real-time response
The most powerful use-case of sectoral indices lies in sector-specific derivatives. Instead of shorting individual bank stocks, an investor fearing a credit downgrade can simply short Bank Nifty futures — cheaper, cleaner, faster. Weekly expiries allowed hedging around specific events like RBI meetings or court rulings. But SEBI’s 2024 move to restrict weekly expiries to just one index per exchange dealt a blow to this flexibility.
Global markets like Eurex offer weekly options on Euro STOXX Banks — India must consider reviving weekly sectoral expiries, starting with the most active indices like Bank Nifty and FinNifty.
Time to upgrade the ecosystem
If India wants to become a global financial hub, it must embrace and expand tools that deliver precision. Sectoral indices offer that — not just for hedging, but for sharper investment, better policy, and faster decisions. The structure exists. Now it’s time to scale, refine, and future-proof it.
(Views expressed by the expert are his/her own. E-mail us your investment queries at askmoneytoday@intoday.com. We will get your queries answered by our panel of experts.)