NEPSE Indices Explained: NEPSE, Sensitive, Float, Sensitive Float and Sub-Indices

A stock index is a single number that summarises the price movement of a basket of listed shares, so investors can see at a glance whether the market as a whole is rising or falling. The Nepal Stock Exchange (NEPSE), the country's only automated securities exchange, publishes several such indices rather than one. Each index answers a slightly different question, and understanding which basket of shares an index measures is the key to reading Nepal's market correctly.

Every NEPSE index is calculated using the value-weighted (market-capitalisation-weighted) method. In this approach the current combined market value of the shares in the basket is divided by the combined market value of those same shares on a fixed 'base' date, and the result is multiplied by the base index value of 100. The general formula is: Index = (Current market capitalisation of constituents / Base-period market capitalisation of constituents) x 100. Because the weighting is by market value, larger companies move an index more than smaller ones.

The four headline indices differ only in which shares they let into the basket. The NEPSE Index admits every listed security; the Sensitive Index admits only shares of Group 'A' companies; the Float Index admits every listed security but counts only the freely tradable (public) portion of each; and the Sensitive Float Index applies both filters at once. On top of these, NEPSE runs sector sub-indices that slice the market into industries such as commercial banks or hydropower.

The NEPSE Index is the number quoted in news headlines and is the broadest gauge of the Nepali equity market. It is a capitalisation-weighted index of all ordinary shares listed on the exchange, so it reflects the total listed market value across every sector, from banks and insurers to hydropower and manufacturing. When people say 'the market went up 1 percent', they almost always mean this index.

Its base date is 12 February 1994 (30 Magh 2050 in the Bikram Sambat calendar), corresponding to the period when NEPSE opened its trading floor, and its base value is 100. That means today's index level shows how many times the total listed market value has grown relative to early 1994.

The main criticism of the NEPSE Index is that it includes non-tradable shares, notably promoter and government holdings that are locked up and never trade. Because these locked shares are still counted in the market capitalisation, the headline index can overstate the value that is genuinely available to ordinary investors. This limitation is precisely what the Float and Sensitive indices were designed to address.

The Sensitive Index narrows the basket to shares of companies classified by NEPSE in Group 'A', a quality tier reserved for larger, consistently profitable and better-governed listed firms. It uses the same value-weighted formula but its market capitalisation covers only Group 'A' scrips, so it behaves as a 'blue-chip' gauge of the strongest listed companies rather than the whole market.

The Group 'A' filter is what makes this index distinctive. To be classified in Group 'A', a company has generally had to meet criteria such as a minimum paid-up capital, a minimum number of public shareholders, a track record of consecutive profitable years, a book value (net worth per share) not below the face value, and timely publication of audited annual accounts. NEPSE reviews and republishes the Group 'A' list periodically, so an index constituent can be promoted or demoted between reviews.

The Sensitive Index carries a base value of 100. It is widely documented with a base date of 26 Bhadra 2065 (11 September 2008), the same base period used for the Float and Sensitive Float indices. Some secondary sources report an earlier base period for the Sensitive Index, so where an exact base date matters for research, it should be confirmed against NEPSE's own indices page.

The Float Index answers a different question from the NEPSE Index: not 'how big is the listed market?' but 'how has the value of shares people can actually trade moved?' It applies the free-float methodology, meaning it counts only the portion of each listed company's shares that is floated to the general public and readily available for trading. Promoter shares, government holdings, strategic stakes and other locked-in holdings are excluded from the calculation.

By stripping out non-tradable holdings, the Float Index is generally regarded as a more rational reflection of genuine supply, demand and liquidity than the headline index. It still covers all listed companies, not just Group 'A' firms, so its breadth matches the NEPSE Index while its weighting reflects only the tradable slice of each company.

The Float Index was introduced with a base date of 26 Bhadra 2065 (11 September 2008) and a base value of 100. Because the free-float share of many large Nepali companies is small, the Float Index level typically sits below the headline NEPSE Index; the gap between the two is itself a useful signal of how much of the market is locked away in promoter and state hands.

The Sensitive Float Index applies both filters at the same time. It takes only Group 'A' companies (the Sensitive filter) and, within those, counts only their freely tradable public shares (the Float filter). The formula is the familiar value-weighted ratio: current market value of the floated public shares of Group 'A' companies, divided by that same figure on the base date, times 100.

This index is the cleanest of the four for judging investor sentiment, because it removes two distortions at once: weaker companies (via the Group 'A' filter) and locked promoter or government holdings (via the free-float filter). What remains is the tradable value of Nepal's strongest listed firms, which many analysts treat as the most reliable barometer of the 'investable' blue-chip market.

Like the Float and Sensitive indices, the Sensitive Float Index uses a base date of 26 Bhadra 2065 (11 September 2008) and a base value of 100. Comparing the Sensitive Float Index against the plain Sensitive Index shows how much of the blue-chip market's paper value is actually free to change hands.

Alongside the four headline indices, NEPSE publishes sector (sub) indices that group listed companies by industry, so investors can see where market leadership is actually coming from on a given day. Each sub-index is built the same value-weighted way as the main index, but its constituents are restricted to a single sector. The banking (commercial bank) sub-index, for example, tracks only the market value of listed commercial banks, which historically make up the largest single slice of NEPSE by capitalisation.

NEPSE currently maintains sector indices covering roughly a dozen groups. These typically include commercial banks, development banks, finance companies, microfinance (laghubitta), life insurance, non-life insurance, hydropower, hotels and tourism, manufacturing and processing, trading, investment, mutual funds, and an 'others' catch-all. The insurance sector was split into separate life and non-life sub-indices in 2018, reflecting how NEPSE periodically restructures its groupings as the market grows.

Sector sub-indices are often more informative than the headline number for active investors, because the broad NEPSE Index can be dragged up or down by one dominant sector. Watching the banking, hydropower or microfinance sub-indices separately reveals which industries are driving a move, and helps investors compare the performance of the sector they are invested in against the market as a whole.

The single most searched question is the difference between the NEPSE Index and the Sensitive Index. The NEPSE Index is the all-share, whole-market number; the Sensitive Index is a filtered 'blue-chip' number covering only Group 'A' companies. So the NEPSE Index tells you about the market overall, while the Sensitive Index tells you about its strongest, most tightly screened members.

The Float versus non-float distinction is the other key idea. Indices without 'Float' in the name (NEPSE Index, Sensitive Index) count the total shares of each company, including locked promoter and government holdings. Indices with 'Float' (Float Index, Sensitive Float Index) count only the freely tradable public shares. Because a large share of many Nepali companies is locked, the float indices sit lower and move more in line with real trading.

A practical way to remember the four is a two-by-two grid. On one axis: all listed companies versus Group 'A' only. On the other: total shares versus free-float shares only. The NEPSE Index is all-companies and total-shares; the Sensitive Index is Group 'A' and total-shares; the Float Index is all-companies and free-float; and the Sensitive Float Index is Group 'A' and free-float. All four are rebased to 100 on their base dates, so their absolute levels are not directly comparable, but their day-to-day percentage moves are.