Featured Image Caption: Bank Nifty Index
If you are new to the stock market, there is a thin chance that you might be fully aware of what an index is and how it works. Well, if you are fairly experienced, you know how they work – and what good it does to your investing. So, for the newbies, here is a brief.
Indices are the collection of stocks and instruments that are used to track an industry’s or sector’s growth or trajectory. These whole-sector tools enable us to examine how a segment of the market is functioning in order to better comprehend investment opportunities and market volatility.
What are some examples of Indices?
S&P 500 of the United States, DAX 40 in Germany, the FTSE 100 in the United Kingdom, and Nifty Today are a collection of each country’s largest corporations based on market capitalization. Traders can grasp the overall fluctuations of the market and arrange their investing strategy appropriately by tracking an index, which tracks a basket of publicly listed stocks.
Now, since there are these many indices, let us focus on one. Nifty Bank Index. Let us get to know it more and how it works.
What is the Nifty Bank Index?
In the year 2000, the NIFTY Bank Index was established. The starting date is January 1, 2000, and the starting value is 1000.
NIFTY Bank or Bank is a stock that is traded on the New York Stock Exchange. The NIFTY index is devoted only to the banking industry. It is the second most widely followed index in India, after the Nifty index, since it includes the most liquid Indian banking equities.
The index, which includes twelve equities from the banking sector, is calculated using the free float weighted technique. The NIFTY Bank Index has grown in importance as a result of the index’s strong weighting of financials.
The NIFTY Bank Index was created to offer investors and market intermediaries a benchmark that measures the capital market performance of Indian bank equities, both public and private.
How Many Stocks Does the Nifty Bank Index Have Now?
The answer to this is simple – but before we get to that, don’t you want to know how companies are selected as eligible on Bank Nifty?
The Eligibility Criteria for Stocks to Get Listed on Bank Nifty
- At the time of the review, the companies should be part of the NIFTY 500.
- Companies should be included in the banking industry.
- In the previous six months – the company’s trading frequency needs to be at least 90%.
- The company needs to have a six-month listing history.
- Only companies that are permitted to trade in the F&O segment are eligible to be index constituents.
- The free-float market capitalization of the companies will be used to make the final selection of 12 enterprises.
- At the time of rebalancing – the weightage of each stock in the index is computed based on its free-float market capitalization, with no one stock having a weightage of more than 33% and the top three stocks having a weightage of more than 62%.
How Many Stocks are Listed on Bank Nifty Now?
Bank Nifty has both – the private and public sector banks listed on it.
It has a total of 12 stocks listed on it, and they are:
- IndusInd Bank
- ICICI Bank
- Axis Bank
- Federal Bank
- AU Small Finance Bank
- Kotak Mahindra Bank
- RBL Bank
- IDFC Bank
- HDFC Bank
- Bandhan Bank
Only when the banks qualify as eligible, due to the above-mentioned factors, would they be listed on Bank Nifty. As these are leveraged positions, where traders only put up a percentage of the contract value to trade, adverse price movement can result in significant losses for traders. Furthermore, the Bank Nifty futures contract has a larger beta (is more volatile) than the Nifty futures contract.
Why Invest through Bank Nifty?
In the midst of the pandemic’s most difficult period, the quality of banks’ assets has improved in terms of gross and net non-performing assets (NPAs). Along with economic recovery, credit off-take from banks would improve over time from current sluggish levels. When the RBI reverses the interest rate cycle, lending rates will rise as well.
Floating rate loans would be reset more quickly. It will take time for deposit rates to rise for MCLR-based loans, but it will happen eventually. Fintech firms appear to be competing with banks and threatening to take business away. However, this is only a “co-opetition” because fintech firms lack a banking license.
If someone told us that we should be satisfied with average returns on our investments, we would be furious. We could not seem to get away from the impulse to do better or outperform the status quo. Bank asset quality is improving as a result of changes that may result in lower risk and higher returns.
Banks act as intermediaries by receiving deposits and lending the money to people in need, allowing for the most efficient utilization of scarce resources.
The need for banking and related services will rise as the working population grows and disposable income rises. By 2025, India’s fintech industry is expected to be worth Rs.6.2 trillion (US$ 83.48 billion) as of now.
You could easily invest in the Bank Nifty Index through different listed ETFs. When you are looking to invest in the financial sector – this is a great way to get started!