When the NEPSE index moves, it hides a more interesting story. On any given day, the headline index might be flat while banking stocks are rallying and hydropower is falling. The index alone cannot tell you that — but the sub-indices can.
NEPSE publishes 13 sector indices that track the performance of stocks grouped by industry. Understanding these indices lets you see where money is flowing, spot rotation early, and measure whether your own portfolio is beating its sector. This guide explains each sub-index, what it contains, and how to use them.
What Are Sub-Indices and Why Do They Matter?
A sub-index is a stock index that tracks a specific sector of the market. NEPSE calculates these alongside the main NEPSE index, using the same methodology but restricted to companies in that sector.
Why They Matter
- See the real market: the headline index averages away sector moves. Sub-indices reveal what is actually driving the market.
- Spot rotation: when money moves from banks to hydro, you see it in the relative performance of the two sub-indices before it shows up in stock discussions.
- Benchmark yourself: is your bank portfolio beating the banking sub-index? If not, you may be holding the wrong banks.
- Understand risk: sector indices show which sectors are volatile and which are stable.
The 13 NEPSE Sub-Indices
1. Commercial Banks Sub-Index (NEPSE Banking)
What it contains: all commercial banks listed on NEPSE (NABIL, NMB, NICA, EBL, etc.)
Characteristics:
- The largest and most influential sub-index — commercial banks dominate market capitalization
- Lower volatility than the broader market
- Moves with interest rates and monetary policy
- Dividends matter — banks are the market's income plays
Why watch it: the banking index often leads the market. When it rallies, the main index usually follows; when it falls, the market struggles to hold.
2. Development Banks Sub-Index
What it contains: development banks (e.g., KBL, SDBL, MLBL)
Characteristics:
- Smaller than commercial banks, higher risk profile
- More sensitive to local economic conditions
- Higher potential growth but weaker balance sheets historically
- Consolidation via mergers has reshaped this sector
Why watch it: development banks are a middle-risk bet — they track the banking cycle with more volatility and less liquidity.
3. Finance Companies Sub-Index
What it contains: finance companies (e.g., GILB, SFFIL, JFL)
Characteristics:
- The smallest and riskiest of the financial sub-indices
- Thin liquidity, wide price swings
- Historically troubled asset quality, but turnaround potential after consolidation
Why watch it: finance companies are a speculative satellite — tiny positions only, high risk of loss.
4. Microfinance Sub-Index
What it contains: microfinance institutions (e.g., MERO, NUBL, FORTUNE)
Characteristics:
- Highly volatile, driven by retail sentiment
- Sensitive to regulation (NRB and SEBON both regulate the sector)
- Credit quality swings drive big earnings moves
Why watch it: the microfinance index is a barometer of retail risk appetite — when it falls, retail is de-risking.
5. Life Insurance Sub-Index
What it contains: life insurance companies (e.g., LICN, NLIC, SBL)
Characteristics:
- Steady premium growth, long-duration business
- Lower volatility than the market
- Sensitive to bond yields (investment portfolio gains/losses)
Why watch it: life insurers are the "boring compounders" — their index grinds upward over long periods with shallow drawdowns.
6. Non-Life Insurance Sub-Index
What it contains: non-life (general) insurers (e.g., NICL, NIGO, SHIVM)
Characteristics:
- Includes fire, motor, marine, and miscellaneous insurance
- More cyclical than life insurance (tied to economic activity and vehicle sales)
- Underwriting quality varies widely between companies
Why watch it: a good proxy for the general economy's health via insurance demand.
7. Hydropower Sub-Index
What it contains: hydropower companies (e.g., CHCL, RHPL, SHPC, UPPER)
Characteristics:
- The most volatile major sub-index
- Retail favorite — momentum and sentiment driven
- Earnings linked to monsoon, commissioning, and tariffs
- New listings keep expanding the sector
Why watch it: the hydro index moves in strong trends. It leads in bull phases and falls hardest in corrections.
8. Hotels and Tourism Sub-Index
What it contains: hotels and tourism companies (e.g., SHL, OHL, KDL)
Characteristics:
- Recovery-linked: tracks tourism arrivals and economic sentiment
- Low liquidity, few listed players
- Dividend payers with real estate assets
Why watch it: a play on Nepal's tourism recovery — a small but telling barometer.
9. Trading Sub-Index
What it contains: trading companies (e.g., STC, SIC, NIFRA)
Characteristics:
- Few listed companies, low liquidity
- Inventory-based earnings, import-export exposure
- Occasionally spikes on specific events (commodity prices, trade policy)
Why watch it: niche, but occasionally the source of unusual market moves.
10. Manufacturing and Processing Sub-Index
What it contains: manufacturers (e.g., UNL, BHL, JOSHI)
Characteristics:
- Diverse: food, beverages, cement, and other industrial producers
- Earnings tied to input costs, import policy, and domestic demand
- Generally stable, dividend-paying businesses
Why watch it: the manufacturing index is the closest thing to an "industrial" indicator on NEPSE.
11. Investment Sub-Index
What it contains: investment companies and funds (e.g., HIDCL, NIFRA investment arm, mutual fund managers)
Characteristics:
- Tracks entities that invest in other companies
- Performance tied to the underlying market (they hold equity portfolios)
- Includes some of the largest non-bank institutions
Why watch it: these companies are leveraged bets on the market itself — they amplify index moves.
12. Mutual Funds Sub-Index
What it contains: closed-end mutual funds listed on NEPSE (e.g., NIBL SF1, NMB 50, etc.)
Characteristics:
- Tracks fund NAV performance and market prices of fund units
- Trades at premium or discount to NAV
- Less volatile than individual stocks
Why watch it: a diversified, lower-risk way to gain market exposure — useful for beginners.
13. Others Sub-Index
What it contains: companies that do not fit the other categories (e.g., Nepal Telecom, some utilities)
Characteristics:
- The catch-all bucket
- Contains some of the largest individual stocks (like NTC)
- Moves can be driven by a single heavyweight company
Why watch it: despite the name, this index can matter — NTC's moves show up here.
How NEPSE Calculates Sub-Indices
The Methodology in Plain Terms
Like the main index, each sub-index is calculated as a market capitalization-weighted average of its member stocks:
- Each stock's market cap = (number of shares outstanding) × (current price)
- The sector's total market cap is compared to a base value
- The index = (current market cap ÷ base market cap) × base index value
What This Means for You
- Big companies dominate: within each sector, the largest company moves the index most. In banking, NABIL and EBL move the index more than smaller banks.
- Index ≠ average stock: a sector index can rise while most stocks in it fall, if the big caps rise enough.
- Free float matters (for indices that use it): shares held by promoters may be excluded, so the index reflects tradable supply.
Using Sub-Indices: Practical Applications
1. Sector Rotation Detection
When the banking index is flat but hydro is up 15% in a month, capital is rotating. Historical patterns:
- Risk-on phases: money moves to hydro, microfinance, and small caps
- Risk-off phases: money moves to banks, life insurance, and mutual funds
- Capitulation phases: everything falls except maybe gold-related plays
Watching the sub-indices lets you see rotation in real time rather than reading about it after the fact.
2. Sector Performance Comparison
| Sub-Index | Typical Volatility | Typical Dividend Yield | Liquidity |
|---|---|---|---|
| Commercial banks | Low-Medium | High | Very High |
| Life insurance | Low | Medium | Medium |
| Hydropower | Very High | Low | High |
| Microfinance | High | Medium | Medium |
| Development banks | Medium | Medium | Medium |
| Mutual funds | Low | Medium | Medium |
| Finance companies | Very High | Low | Very Low |
3. Benchmarking Your Portfolio
Divide your holdings by sector and compare each sector's performance to its sub-index over 6-12 months:
- Beating the sub-index: good stock selection — hold or add
- Trailing the sub-index: either the sector is in a down cycle (check thesis) or your picks are weak (consider switching)
4. Setting Sector Exposure Limits
Use the sub-indices to enforce diversification discipline:
- If your portfolio is 60% banking, you are effectively a banking fund
- Compare your portfolio's sector weights to the market's — know where you are over- or under-weight
Common Misconceptions
"The sub-index tells me the sector is cheap"
No — an index level alone says nothing about valuation. A low sub-index level can mean the sector is cheap OR that its earnings collapsed. Always compare the index to its own history and to sector earnings (P/E).
"All companies in a sector move together"
Within banking, a small bank with a turnaround story can triple while the big banks are flat. The sub-index averages across companies; individual opportunities still exist within every sector.
"Sub-indices predict the market"
They describe, they do not predict. A hydro rally can end tomorrow. Use sub-indices to understand what is happening and to measure risk — not to forecast.
Where to Track Sub-Indices
You can track all 13 sub-indices on OneClickResult's NEPSE market pages, which show:
- Live sub-index levels and daily changes
- Sector performance at a glance
- Top movers within each sector
Review the sector performance page daily to stay current on rotation, and check it weekly to assess whether your portfolio's sector exposure matches your intentions.
The Bottom Line
The NEPSE index tells you what the market did. The sub-indices tell you why. For any serious NEPSE investor, the sector indices are an essential layer of analysis:
- Watch rotation through relative sub-index performance
- Benchmark your holdings against their sector
- Control risk by tracking your sector concentration
- Understand the market's character — risk-on vs. risk-off — before making decisions
The investors who understand which sectors are driving the market — and why — are the ones who position before the move, not after it. The sub-indices are the window into that understanding.
Disclaimer: This article is for educational purposes only and does not constitute investment advice. Index data is indicative and subject to change. Always conduct your own research before investing.