Bank Nifty vs Nifty Fin Services: Where to invest your money?

Are you confused which is the best option to invest in between Bank Nifty or Nifty Financial Services? An investment should always be well-planned bases on reasoning, fundamentals, calculations and other relevant aspects.

Let’s take a deep dive into details of Bank Nifty vs Nifty Financial Services to try and understand which is a better option to put in your money.

Bank Nifty

Bank Nifty is a sectoral index that focuses only on banking stocks; both private and public. It is also one of the most actively traded indices in the futures & options (F&O) segment and is available for F&O trading on NSE.

Plus, this is what you must know about Bank Nifty:

• The index is calculated using the free float methodology, where the stocks are weighted based on the free-float market capitalisation.
• Bank Nifty was launched on September 15, 2003 and it uses January 01, 2000 as the base year with a base value of 1,000. This means at the Bank Nifty value of ~30,000 indicates wealth creation to the tune of 30 times over the last 19 years.
• The index is rebalanced semi-annually and Bank Nifty values are available on a real time basis during trading hours.

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

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

The Index Constituents

For trading, Bank Nifty lot size has recently been revised to 25 units from 20.

Nifty Financial Services

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

This is what you must know about the NIFTY Financial Services index:

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

Nifty Fin Services constituents

The index has 20 constituents and weightage of each stock on the index is calculated based on its free-float market capitalization so 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.

The Index Constituents

Bank Nifty vs Fin Nifty: Conclusion

• Nifty Financial Services index has a 94% correlation and a beta value of 1.2 with the Nifty50 Index and 98% correlation with Bank Nifty.
• Nifty Financial Services index has delivered annualised returns of 14.99% in last 5 years. As many as 10 out of 20 stocks in Nifty Financial Services index are constituents of Nifty50 index. They account for 92.97% weightage in Nifty Financial Services index and 38.41% in Nifty50 Index.
• Five out of 20 stocks in Nifty Financial Services index are constituent stocks of Bank Nifty and account for 63.89% weightage in Nifty Financial Services index and 87.48% weightage in Bank Nifty.
• The largest sector among listed companies accounts for 33.5% of the Nifty500 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 a few big companies are in process of getting listed
• Most Asset Management Companies (AMCs) have schemes themed on the financial services sector
• As it is complete package of Indian financial sector, and not only banks, Nifty Financial Services index could be a better option to take exposure to the entire financial sector, while Bank Nifty limits you within banking.

(Ravi Singhal is Vice Chairman of GCL Securities)