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What is Nifty Bank Index and How it is Calculated?

What is Nifty Bank Index and How it is Calculated?

Published on 26 May 2022 .Views 5 .Comments 0
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Nifty Bank Index comprises the most liquid and large Indian Banking Stocks. This index is one of the indexes where there is a high amount of trading involved in the market. In this article, we will be discussing in detail regarding the Nifty Bank Index, its methodology, constituents, and finally its performance as we move forward.

What is the Nifty Bank Index:

  • Nifty Bank, or Bank Nifty, is an index comprised of the most liquid and large capitalized Indian banking stocks. It is one of the most popular indexes and most traded also.
  • The index consists of a maximum of 12 stocks listed on NSE.
  • Rebalancing of the nifty bank index is done semi-annually, one in March and another in September.

Eligibility for Nifty Bank Index:

  • Companies should form part of the Nifty 500.
  • Companies should form part of the banking sector.
  • Only those companies that are allowed to trade in the F&O segment can be considered.
  • They should have a minimum listing history of one calendar month and 90% trading frequency as the data cut-off date.

Selection Criteria

  • The companies are sorted in descending order of the average free-float market cap.
  • Inclusion criteria-If the free-float market cap is at least 1.5 times the free-float market cap of the smallest index constituent.
  • There is a capping of 33% which means no single stock can have more than 33% weightage.
  • At the time of rebalancing, the weights of the top 3 stocks cannot be more than 62% cumulatively.

Recent Change in the Nifty Bank Index:

Sr. No.

Month

In

Out

1

Mar-22

Bank of Baroda

RBL Bank

2

Mar-21

AU Small Finance Bank

Bank of Baroda

3

Mar-20

Bandhan Bank

Yes Bank

4

Mar-18

RBL Bank

Canara Bank

5

Mar-17

IDFC First Bank

Bank of India

6

Mar-14

The Federal Bank

Union Bank of India

 

  • An index fund is a self-cleaning mechanism as they based on certain rules and regulations.
  • As per information, mainly PSB (public sector banks) are being out from the Bank Nifty Index and private sector banks are being in.

Index Constituents

Sr. No.

Company

Weight (%)

1

HDFC Bank

27.04

2

ICICI Bank

23.03

3

Kotak Mahindra Bank

11.72

4

State Bank of India

11.27

5

Axis Bank

11.18

6

IndusInd Bank

5.58

7

AU Small Finance Bank

2.69

8

Bandhan Bank

1.98

9

Bank of Baroda

1.84

10

Federal Bank

1.68

11

IDFC First Bank

1.07

12

Punjab National Bank

.91

These weights are the approx. in percent as of May 2022.

Performance of Nifty Bank Index:

  • The trailing returns as compared to Nifty 500 then bank nifty has not given the good returns as banking sector in last 2-3 years has not done well.
  • In the calendar year returns compared to Nifty 500 than in the year 2020, 2021 bank nifty has given very bad returns.
  • In the years 2019,2018,2017 and 2016, it has given a good return compared to nifty 500.
  • The standard deviation is high and Beta is also more than 1, which means it is a highly risky and volatile index.
  • Alpha is down currently, as the banking sector has not given a good return in the last 2-3 years.
  • The current PE ratio is less than Nifty 500.
  • There are around 12 ETFs (Exchange Traded Fund) like Nippon India ETF Bank BeES started from May-04 with a current AUM (Asset Under Management) is Rs. 10,262 crores and Kotak Banking ETF with a current AUM of Rs. 7,936 crores.

What should investors do?

As the bank nifty index is a thematic ETF and also has been so risky and volatile as compared to the Nifty 50, Investors can take decisions according to their risk-taking appetite and their preference.

Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.

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