Nifty Bank

About NIFTY BANK

NIFTY Bank is an important index in the Indian stock market that monitors the banking sector's performance. The index comprises 12 of the most actively traded banks on the NSE (National Stock Exchange). Given the reliance of the Indian economy on its banking industry, the NIFTY Bank Index is an important indicator for investors, analysts and policymakers. Over recent years, it has garnered popularity among traders and investors for its capability to offer insights into the overall well-being of the banking sector.

The index is a benchmark for investors and traders to look at the market performance of Indian banks. It is also used to determine a range of financial products associated with the banking industry such as mutual funds and exchange-traded funds.

History of the NIFTY Bank Index

NIFTY Bank index was introduced in January 2000 with a base value of 1,000. It was created to monitor the performance of banking stocks listed on the exchange.

How Is the NIFTY Bank Index Value Calculated?

NIFTY Bank index value is calculated by looking at the market capitalisation of the constituent stocks. The market capitalisation represents the overall value of a bank’s shares in the market. It is multiplied by the company's free float factor to calculate the index value. The free float factor is the proportion of shares available for trading.

This process is repeated for all constituent banking stocks in the NIFTY Bank index, and the individual contributions are totalled to determine the overall index value. The index value is recalculated periodically throughout the trading day to account for changes in the market capitalisation and free float factors of the constituent stocks.

This calculation helps investors monitor and analyse the overall performance of the banking sector. It provides insights into trends and fluctuations within the banking industry. So, it affects investment decision-making and risk management strategies.

The index gets rebalanced semi-annually with cut-off dates set on January 31 and July 31 of each year. In the semi-annual review of indices, average data for the six months leading up to the respective cut-off date is taken into consideration. No stock is allowed to exceed a 33% weightage on the index and the cumulative weightage of the top three stocks combined cannot be more than 62% during the rebalancing process.

NIFTY Bank Top 10 Constituents

HDFC Bank Limited held the highest weightage at 29.39%, as the calendar year 2023 ended. Following closely was ICICI Bank Limited with a weightage of 22.57%. Other major contributors include Kotak Mahindra Bank at 9.92%, Axis Bank at 9.88% and State Bank of India at 9.87%. These top banks, along with contributors such as IndusInd Bank, Bank of Baroda, AU Small Finance Bank Limited, Federal Bank and IDFC First Bank, collectively form the NIFTY Bank Index.

Eligibility Criteria for a Bank to Be on the NIFTY Bank Index

There are many rules and criteria that a bank must adhere to for it to get enlisted on the index. The bank should have actively participated in trading for a minimum of 90% of the time over the last six months. As of the specified cutoff date, it should have a listing history of at least one month. Also, only those banks with authorisation to trade in the Futures and Options (F&O) segment are considered eligible.