NIFTY BANK
List of NIFTY Bank stocks
What Is The Nifty Bank Index?
The Nifty Bank Index is a critical index of the National Stock Exchange, which was launched on 15th September 2003. This index focuses on the Indian banking sector and is the benchmark for its performance. This index tracks the behaviour and performance of the 12 NSE-listed PSU and private sector banking stocks.
Nifty Bank or Bank Nifty is considered very important from the perspective of investors and market intermediaries and hence is used to benchmark various ETFs and index funds.
- The Nifty Bank index captures the performance of the Indian banking sector.
- It tracks the performance of the 12 most liquid and largest listed banking stocks.
- Bank Nifty Index was launched on 15th September 2003.
Which Stocks Are Included In The Nifty Bank Index?
The stocks included in the Nifty Bank Index form part of the Indian banking sector. Its constituents include the most liquid and largest 12 banking sector stocks from both the sub-sectors, the public sector and the private sector. Listed banking companies like Bank of Baroda (BOB), Axis Bank, and HDFC Bank are some of the major constituents of the Nifty Bank Index.
- The constituents of the Nifty Bank index include 12 Indian Banking stocks.
- The index consists of stocks like Axis Bank, HDFC Bank Ltd. and SBI.
How Is The Nifty Bank Index Calculated?
The Nifty Bank Index or the Bank Nifty is calculated using the free float market capitalisation method. Under the process, the 12 constituents of the index are weighted according to their free float market cap.
The index value is calculated using the following formula:
Index Value = current free float market cap/ (base market cap * base index value)
The Nifty Bank index is reviewed semi-annually on cutoff dates of 31st January and 31st July. During rebalancing, the index constituents are excluded from the index or new stocks are added to the index per the eligibility criteria. It is important to note that it is not necessary to change constituents at every rebalancing of the index.
- The Nifty Bank index is calculated using the free float market capitalisation method.
- The index value represents its constituent's aggregate free float market cap relative to the base market cap and base index value.
- This index is reviewed semiannually on 31st January and 31st July every year.
Eligibility For Nifty Banks Index Constituents
- Companies must be listed on the National Stock Exchange (NSE) of India.
- At the time of review, companies should form part of the Nifty 500 index.
- Companies must be a part of the Indian Banking Sector.
- The trading frequency of the stock in the past six months should be at least 90%.
- As of the cutoff dates, the company must have a listing history of 1 month.
- The company will be included in the index only if they are allowed to be traded in the F&O segment.
- The final selection of companies is based on their free float market capitalisation.
- The weightage of no single stock can be more than 33%, and the weightage of the top 3 stocks of the index is capped at 62%.
How to Invest In the Nifty Bank Index?
To invest in the Nifty Bank index, you can choose the following two methods:
- Direct Stock Selection - To create a portfolio similar to that of the Nifty Bank Index through this method, you have to manually select and invest in the constituents of the Nifty Bank index while applying the concept of free float market cap and weightage distribution. However, this method is unsuitable for many investors because the manual replication of the Bank Nifty Index is a very complex and capital-intensive activity. For example, initially, you buy one share of each of the index's constituents, and your total capital invested as of 11:54 AM on 1 January 2025 would be Rs 8,292, whereas the value of the Nifty Bank Index is more than 50,000. Now, imagine the amount of capital and calculation required for investing in its constituents in the same weight as they are present in the index and tracking them daily to maintain the similarity between the value of your portfolio and the index value. Thus, investors with the required capital and skills should move forward with this method.
- Index Funds and Exchange Traded Funds (ETFs) - Index funds and exchange traded funds are passively operated investment vehicles that are managed by experienced fund managers who benchmark these funds with market indices. Investors can choose funds that are benchmarked with the Nifty Bank index to invest and gain returns similar to those of this index. Index funds and ETFs are similar in various ways. However, ETFs are tradable investments like equities, whereas index funds are a form of mutual fund that can not be traded on the stock markets. Investors can choose the most suitable option from these two to invest in the Nifty Bank with limited capital and risk.
Key Takeaways On Nifty Bank Index
- The Bank Nifty Index is a sectoral index that tracks the performance of the 12 most liquid and largest banking sector stocks.
- The index helps investors analyse the performance and overall sentiment of the banking sector over a particular period.
- The index was launched on 15th September 2003 with a base value of 1000 and a base date of 1st January 2000.
- The Nifty Bank Index or the Bank Nifty is computed using the free float market capitalisation method.
- It is also reviewed semi-annually each year on 31st January and 31st July.
- Investors can invest in the Nifty Bank index either by direct stock selection or through index funds and Exchange Traded Funds (ETFs).
FAQs
What is the sectoral representation of the Nifty Bank Index?
Because the Nifty Bank Index is a sectoral index focusing on the banking sector, the sectoral representation of the index is entirely concentrated in the Financial Services Index.
What is the primary objective of the Nifty Bank Index?
The primary objective of the Nifty Bank Index is to provide investors and market participants with a snapshot of the banking sector's health. It assists investors in gauging the overall sentiment and momentum of the Indian banking sector through fluctuations in its value.
Can I trade the Bank Nifty Index?
Yes, you can trade the Bank Nifty Index through derivative contracts. By transacting the future and option contracts of the Bank Nifty Index, you can create the possibility of gaining substantial returns on your positions. However, it is essential to note here that derivative trading is a risky segment, and investors must trade in F&O markets carefully and per their risk tolerance levels.
Why should I invest in the Bank Nifty index?
You should invest in the Bank Nifty index because it is focused on capturing the performance of the Banking sector, which is very important for our economy. Thus, by investing in the index, you can get exposure to quality banking stocks and generate significant returns in the long term. To put this in perspective, you can have a look at the historical returns of the Bank Nifty Index. In the past 1 year and 5 years, the index has provided 18.07% total and 10.90% total returns, respectively. Since its inception, the total returns of the index stand at an impressive figure of 18.72%
Which are the top 5 constituents of the Bank Nifty Index?
The top 5 constituents of the index by weightage are the following:
- HDFC Bank Ltd. (29.38%)
- ICICI Bank Ltd. (24.52%)
- State Bank of India (10.24%)
- Kotak Mahindra Bank Ltd. (9.00%)
- Axis Bank Ltd. (8.67%)
What Is The Difference between the Bank Nifty and the BSE Bankex Index?
The Bank Nifty and the BSE Bankex are two vital indexes of the Indian stock market, focusing on the Indian banking sector. However, there are some significant differences in both the indexes, which are as follows:
Bank Nifty Index:
- It is an index launched by the NSE Indices Limited for NSE.
- The number of constituents of the index is 12.
- It tracks the performance of NSE-listed banking stocks.
- It was launched on 15th September 2003.
BSE Bankex Index:
- The BSE Bankex Index was launched by Asia Index Private Limited for the BSE.
- It includes the top 10 BSE-listed banking stocks.
- The Bankex index was launched on 23rd June 2003.
Who governs and maintains the Nifty Bank Index?
The Bank Nifty index is maintained and operated by NSE Indices Limited, a wholly-owned subsidiary of the National Stock Exchange (NSE). It is governed by a three-tier governance structure. This structure comprises the Board of Directors of NSE Indices Limited, the Index Advisory Committee (Equity) and the Index Maintenance Sub-Committee.
What is free float market capitalisation?
Free float market capitalisation can be broken down into two components. First is “free float” - it refers to the number of company shares that are freely available for secondary trading on exchanges. These shares do not include the shares held by company insiders or the government.
Second is “market cap” - it refers to the aggregate market value of all the company’s outstanding shares.
By clubbing both of these definitions, we can define the free float market cap as the aggregate market value of all the free float shares of a company. This value is arrived at by multiplying the current market price of one share with the total number of free float shares.
Is Bank Nifty and Nifty Bank same?
Yes both of these terms “Bank Nifty” and the “Nifty Bank” are synonym for each other and are used interchangeably by investors and stock market participants.