FinNifty

Indices in financial markets are often used as benchmarks to evaluate an investment’s performance. They are also used to measure financial and economic parameters such as interest rates or inflation.

The Nifty financial services index is designed to reflect the behaviour and performance of the Indian financial market. Unlike bank nifty index, which is not just limited to banks but also includes institutions, housing finance, insurance companies and other financial services companies. It is computed by free-float market capitalisation method, which means only the shares available for public trade are taken into consideration.

It comprises of 20 stocks listed on National Stock Exchange. The Top 5 individual stock occupy about 75% weightage. Half of the stocks also form part of the Nifty50 index.

It was launched in 2011 but had data that is available from January 2004.

Important features of the index:

• The index is rebalanced semi-annually.
• Maximum permissibility weight of each stock is 33%.
• Maximum permissibility of cumulative weight of Top 3 stocks is 62%
• Sector weight of Financial Services Index-
  • Banks(63.9%),
  • Housing Finance (17.5%),
  • NBFCs(8.3%) ,
  • Insurance (8%),
  • Others(2.3%).

• Finnifty offers greater diversification benefits than other subsets that fall in the financial sector and less volatility as compared to bank nifty. It outperforms both banknifty and nifty50. It has a better risk-adjusted return and less total contract value.
• Moreover, they offer weekly and monthly contracts on both futures and options, giving more flexibility to institutional as well as retail investors to manage their hedge. This is the first time that the exchange has made weekly futures for stock index derivatives.
• Currently, as many as 5464 contracts got traded in futures, and 81772 were traded in options. The index witnessed a turnover of 378 crore rupees.

More such indices are necessary so that markets can effectively represent the true economic state.

Sneha Bhosale