The Nifty50 and Bank Nifty indices are the two most popular indices of the National Stock Exchange of India (NSE). In this article we will try to understand what these two indices represent and what are the differences between them. It is crucial for anyone who is wanting to invest in the Indian markets to understand this and what is nifty and bank nifty get their concepts clear.
Why are only 12 bank stocks included in the index?
Overall, Nifty indices are calculated using free-float market capitalization method, helpful for benchmarking fund portfolios, launching of index funds, exchange traded funds (ETFs), and other trading options. India Index Services & Products Ltd. (IISL) unser NSE group company provides indices and index related services for the exchange. Nifty indices comprise broad market indices, sectoral indices, thematic indices, strategy indices, fixed income and hybrid indices. The NIFTY 50 index is a broad market index that consists of 50 large and liquid stocks listed on the NSE.
The NSE keeps a record of the prices and the movements of the bank stocks, and we can find the latest price and the trend of the bnk index from its own website or through our brokers. Both public and private sector banking stocks are included in this sector. Since these are leveraged positions — one puts up a fraction of the contract value to trade — adverse price movement can cause huge losses to traders.
The NIFTY share index is managed by a team of professionals at the NSE Indices Limited. It formed an Index Advisory Committee that offers its expertise and guidance on large-scale issues pertinent to equity indices. Let’s take a closer look at classification of Nifty indices as well as dig past its origin and calculation method.
The BNK option chain allows the trader to identify the support and resistance levels. It is worthwhile to mention that there are broad indices as well as sectoral indices. Since these are two completely different indices it is difficult to compare the returns of the two. Over the long term the Nifty50 has generated more returns compared to Bank Nifty. However, the Bank Nifty is known to have provided the trader with could short term returns since its volatility is higher.
What is a Stock Market Index?
The NIFTY Index is reconstituted every six months and considers the performance of a stock over such period. Depending on this performance, and given that a company and its stock fulfils all the eligibility criteria mentioned above, the list might include or eliminate new/old stocks respectively. In case any new additions and eliminations are done, the companies in question are informed through a notice four weeks before reconstitution. The Nifty includes stocks from all the important sectors of the economy. Both the futures and options contracts for the next 3 months are available on the exchange. It comprises the stocks having the highest market capitalization and the highest liquidity quotient.
Also, Bank Nifty has a higher beta (is more volatile) than Nifty futures contract. Like the Nifty, those bullish on banks can buy Bank Nifty futures comprising 30 shares, or buy a call option on Bank Nifty. Bears can similarly short or sell Bank Nifty futures or buy a put option on the index. We specialize in delivering comprehensive financial planning and investment advisory assistance and services to individuals of any age, gender, income level and profession, families, and corporates. In terms of market capitalization, the Nifty50 is much larger than the Bank Nifty, since it is a broad market index comprising of 50 stocks as compared to 12 stocks in the Bank Nifty. The methodology involved in the calculation of indices also considers changes in corporate actions, which for instance comprise of rights issuance, stock splits, etc.
NIFTY BANK INDEX (Banknifty)
As mentioned earlier the Nifty50 represents 13 sectors of the Indian economy. Hence it is widely used by investors who want to get an overall view of the Indian stock markets and the Indian economy. The Bank Nifty on the other hand will give you a specialised view on the banking sector only. Over the years, the Indian stock markets have become the go to destination for the global investors who are always looking for superlative returns from their investments. It is a blended word – National Stock Exchange and Fifty coined by NSE on 21st April 1996. NIFTY 50 is a benchmark based index and also the flagship of NSE, which showcases the top 50 equity stocks traded in the stock exchange out of a total of 1600 stocks.
Index as a benchmark:
Not a single bank stock has a weight of more than 30% in the index, whereas the weight of the top three stocks together comprises 62% of the overall index. Being a broad market in the excise duty is less susceptible to ups and downs of a single index. Hence it is less volatile than Bank Nifty which is a sector specific index. Broad indices such as NIFTY and Sensex are used as a benchmark for Mutual Funds to measure their performance.
The following table demonstrates some of the companies listed under NIFTY 50 in the semi-annual period from July – December 2019. The banking and finance sector is the most widely used and highly invested sector in our country. Information available on this website is solely for educational purpose only. The advice, suggestion and guidance provided through the blogs are based on the research and personal views of the experts.
The value of the bnk symbolizes the bank stocks, and the entire bank nifty index is updated in real-time on a trading day just like other stocks. The Bank Nifty is a stock market index specifically designed to track the banking sector. Yes, losses can be minimised by buying calls or puts for May expiry on Bank Nifty. Then the maximum loss will be limited to the premium paid to the seller for the call or put option. For instance, the most active call option was priced around Rs 151 at Friday closing. A bull who buys the call would have had to pay a premium of Rs 4,530 — that’s the max he could lose.
In options, profit’s unlimited while loss is limited to the premium paid. In futures, a trader can have unlimited profits or unlimited losses, if stop loss is not placed.In the case of call and put option sellers, the profit is limited to premium received but losses can be unlimited. As you can see this list contains the names of some of the most well-known companies of India. The index accounts for 62% of the free float market capitalization of NSE as of January 2023. The question that naturally comes to everyone’s mind is that what do these investors look at when they try to evaluate the performance of the Indian stock markets? NIFTY 50 indices are computed based on a float-adjusted and market capitalisation weighted method.
The former is the broader of the two indices, thus offering a much more comprehensive standard of the Indian financial market. Here is a list of notable lows and relevant events in the NIFTY stock market index. Nifty Trading Academy is our institute, where we provide the entire knowledge and study form of the stock market as well as technical analysis. We also upload blogs for technical analysis and stock market learning.
- Bank Nifty was created by NSE in September 2003 to have the free flow movement of the capital market performance of one of the critical service sectors of India, i.e., banking.
- The methodology involved in the calculation of indices also considers changes in corporate actions, which for instance comprise of rights issuance, stock splits, etc.
- We specialize in delivering comprehensive financial planning and investment advisory assistance and services to individuals of any age, gender, income level and profession, families, and corporates.
- It is a blended word – National Stock Exchange and Fifty coined by NSE on 21st April 1996.
When it comes to the settlement of the bnk F & O contracts, the underlying asset has to be delivered or received by the related party by way of cash settlement. Bigger companies, such as HDFC bank, have a higher weightage, whereas smaller companies like PNB have a lower weightage. The base date is referred to as the first date from which that index has been tracked, whereas the base value means the value that is assigned to the index on that date. Assume you went long Bank Nifty futures at by paying a margin of 7% (Rs 35,160). If, on Monday, the Bank Nifty closes at 16500, the loss will be Rs 7,290 (243×30). At that level, what’s the contract value and the approximate margin one has to put up to trade?
