Bank Nifty Vs Fin Nifty: Where To Invest Your Money?

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Investment

oi-Sunil Fernandes

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Are you confused or facing dilemma about where to invest your money – Bank Nifty or Fin Nifty? Investment should always be well-planned on the basis of logics, reasoning, fundamentals, calculations and other relevant aspects. Let’s deep dive into details of Bank Nifty vs Fin Nifty to understand which one is the better option to invest your money.

Bank Nifty

The Bank Nifty is basically a sectoral index with focus only on banking stocks; it includes private and PSU banks. It is also one of the most actively traded indexes in the futures and options (F&O) segment and it is available for F&O trading on the NSE.

Bank Nifty Vs Fin Nifty: Where To Invest Your Money?

This is how Bank Nifty is calculated

  • Bank Nifty is calculated using the free float methodology where the stocks are weighted based on the free float market capitalization.
  • The Bank Nifty was launched on September 15, 2003 and it uses January 01, 2000 as the base year with a base value of 1000. This means at the Bank Nifty value of ~30,000, it indicates wealth creation to the tune of 30 times over the last 19 years.
  • The index is rebalanced semi-annually and the Bank Nifty values are available on a real time basis during trading hours.

Stock mix of the Bank Nifty Index

Being a sectoral index, the Bank Nifty only represents the banking sector; including the private banks and PSU banks. Bank Nifty represents the 12 most liquid and large capitalised stocks from the banking sector which trade on the NSE. It provides investors and market intermediaries a benchmark that captures the capital market performance of Indian banking sector.

Here is the list of companies that are included in Bank Nifty Weightage Index (Nifty Bank Index Stocks) as released by NSE India on basis of closing prices of January 31, 2021.

S No. BANK NAME Weights %
1 HDFC Bank 26.89
2 ICICI Bank 20.01
3 Axis Bank 16.59
4 Kotak Mahindra Bank 13.55
5 State Bank of India (SBI) 10.93
6 IndusInd Bank 4.85
7 Bandhan Bank 2.11
8 Federal Bank 1.46
9 IDFC First Bank Ltd. 1
10 RBL Bank 0.97
11 Bank of Baroda 0.83
12 Punjab National Bank (PNB) 0.81

Now, as per the latest development, the Bank Nifty lot size has also been revised to 25 units from 20 units.

FIN NIFTY

The Nifty Financial Services Index is designed to reflect the behaviour and performance of the Indian financial market which includes banks, financial institutions, housing finance, insurance companies and other financial services firms. The Nifty Finance Index comprises of 20 stocks that are listed on the National Stock Exchange (NSE).

This is how NIFTY Financial Services Index is computed and its utility

-NIFTY Financial Services Index is computed using free float market capitalization method, wherein the level of the index reflects the total free float market value of all the stocks in the index relative to particular base market capitalization value.

-NIFTY Financial Services Index can be used for a variety of purposes such as benchmarking fund portfolios, launching of index funds, ETFs and structured products.

FIN NIFTY’s constituents

The index has 20 constituents and weightage of each stock in the index is calculated based on its free-float market capitalization such that no single stock shall be more than 33% and weightage of top 3 stocks cumulatively shall not be more than 62% at the time of rebalancing.

Index Constituents

S No. SECURITY NAME Weights %
1 HDFC BANK LTD. 27.13
2 HDFC LTD. 17.51
3 ICICI BANK LTD. 14.14
4 KOTAK MAHINDRA BANK LTD. 12.1
5 AXIS BANK LTD. 6.46
6 BAJAJ FINANCE LTD. 5.64
7 STATE BANK OF INDIA 4.06
8 HDFC LIFE 2.21
9 BAJAJ FINSERV LTD. 2.29
10 SBI LIFE INSURANCE. 1.43
11 ICICIGI 1.37
12 ICICI PRULIFE. 0.74
13 PEL LTD. 0.68
14 BAJAJ HOLDINGS. 0.66
15 HDFC AMC LTD. 0.59
16 SRT FINANCE LTD. 0.87
17 PFC LTD. 0.54
18 CHOLA INVESTMENT. 0.66
19 REC LTD. 0.49
20 M&M FINANCIAL LTD. 0.44
Lot size is 40

Bank Nifty vs Fin Nifty: Conclusion

  • The Nifty Financial Services index has a 94% correlation and a beta value of 1.2 with the Nifty 50 Index. It has a correlation of 98% with the Nifty Bank index.
  • The Nifty Financial Services index has delivered annualized returns of 14.99% in the last 5 years. 10 out of 20 stocks in Nifty Financial Services index are constituent stocks of Nifty 50 index. They account for 92.97% weightage in Nifty Financial Services index and 38.41% weightage in Nifty 50 Index.
  • 5 out of 20 stocks in Nifty Financial Services index are constituent stocks of Nifty Bank index. They account for 63.89% weightage in Nifty Financial Services index and 87.48% weightage in Nifty Bank Index.
  • Larger sector amongst listed companies; accounts for 33.5% of the Nifty 500 Index
  • 35% of Foreign Portfolio Investments (FPIs) assets under managements are invested in the financial services sector
  • 48% of FPIs net inflows in recent period is invested in the financial services sector
  • Last few years have seen big IPOs in the financial services sector and few big companies are in process of getting listed on the exchanges-
  • Most Asset Management Companies (AMCs) have schemes themed on the financial services sector
  • As it is complete package of Indian financial sector not only banks even other products as well and there is more scope in other financial sectors, so it is recommended to invest in FIN NIFTY.

Authored by – Ravi Singhal, Vice Chairman, GCL Securities Limited





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