What is FINNIFTY? All You Need To Know | Espresso

What is Finnifty?

Much to the investors' surprise, the National Stock Exchange (NSE) launched FINNIFTY or Nifty Financial Services index in January 2021. The Finnifty index comprises companies catering to different segments of the financial industry. 

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There are a total of twenty stocks in the index, each with a distinct weightage. Finnifty index decides weightage based on the company's outstanding shares' valuation on the market. Here's how to calculate the market capitalisation of outstanding/free-float shares.

Let’s understand the key highlights of what Finnifty is.

Key Highlights of the Finnifty Index:

  • FINNIFTY index's base date is January 1, 2021.
  • The index's base value is 1000.
  • The index consists of companies that are Non-Banking Financial Companies (NBFCs), Asset Management Companies (AMCs), housing finance, banking institutions, and insurance firms.
  • The index comprises 20 stocks.
  • The companies on the FINNIFTY may change after every six months.
  • FINNIFTY considers only those companies that are listed in the Nifty 500 index.
  • The company's weightage is reliant on its stocks' free-float market capitalisation.
  • A buffer is applied to the stocks' free-float market capitalisation to keep the turnover under check.

The Settlement Process Under Finnifty

FINNIFTY derivatives' settlements is conducted in cash. In the case of a monthly contract, the expiry date is the expiry month's last Thursday. On the other hand, weekly contracts are subject to expiration on the expiry week's Thursday.

Key points:

  • The options and futures are available in three monthly and seven serial weekly contracts.
  • The National Stock Exchange is providing weekly futures on stock index derivatives for the first time.

List Of Companies in the Finnifty Index

Here is the list of Finnifty twenty companies along with their current market capitalisation.

 

Company name

Industry 

Market Capitalisation

Bajaj Finserv Ltd.

Finance - investment

₹200,081.9 crores

Bajaj Finance Ltd.

Finance - NBFC

₹350,785.7 crores

Housing Development Finance Corporation (HDFC) Ltd.

Finance - housing

₹394,581.1 crores

Piramal Enterprises Ltd.

Diversified

₹45,007.2 crores

Kotak Mahindra Bank Ltd.

Private sector bank

₹368,105.8 crores

HDFC Asset Management Company Ltd.

Finance - investment

₹37,011.6 crores

ICICI Lombard General Insurance Company Ltd.

Life & health insurance

₹59,938.3 crores

Muthoot Finance Ltd.

Finance - NBFC

₹46,616.3 crores

Shriram Transport Finance Company Ltd.

Finance - NBFC

₹30,748.6 crores

SBI Life Insurance Company Ltd.

Life & health insurance

₹107,689.9 crores

SBI Cards and Payment Services Ltd.

Consumer finance

₹70,732.1 crores

ICICI Bank Ltd.

Private sector bank

₹494,294.6 crores

Axis Bank Ltd.

Private sector bank

₹207,402.3 crores

Cholamandalam Investment & Finance Company Ltd.

Finance term lending

₹53,484.8 crores

HDFC Life Insurance Company Ltd.

Life & health insurance

₹116,462.1 crores

ICICI Prudential Life Insurance Company Ltd.

Life & health insurance

₹73,002.2 crores

State Bank of India

Public sector bank

₹411,335.3 crores

REC Ltd.

Finance term lending

₹23,501.5 crores

Power Finance Corporation Ltd.

Finance term lending

₹28,697.7 crores

 

The Utilisation of the Finnifty Index

Finnifty assists investors in the following ways. 

  • Benchmark 

This index serves as a benchmark for investors. Earlier, if your portfolio consists of financial sector equities, you have two options for comparison: the BSE Sensex and the Nifty50. But, with the launch of Finninfty, you now have a specialised financial sector index to evaluate the performance of your stocks.

  • Individual stocks hedging 

Alternatively, professional investors like to purchase all 50 companies' stocks displayed on the index in a similar weightage. However, FINNFITY places the heavily weighted stock first. The weightage continues to decrease as you move down.

  • Mutual funds

You can put your money into mutual funds that track the index's stocks. Some of the schemes whose portfolio comprises Finnifty stocks are Invesco India Financial Services Funds, ABSL Banking and Financial Services Fund, and Sundaram Financial Services and Opportunities Funds. 

  • Future and options

You may choose stocks from the Finnifty index and trade futures and options for such stocks. The expiry date and fee both will be mentioned on the contract.

Differences Between Finnifty and Nifty 50

Finnifty and Nifty50 have both similarities and distinctions between them. A handful of differences are pointed out below.

  • There are ten Finnifty companies on the Nifty 50 index companies list.
  • The ten Finnifty companies that are also part of the Nifty 50 index account for 93% of the weightage in the former and less than 40% in the latter.
  • Since Finnifty only comprises financial industry stocks, the volatility is higher than the Nifty 50.
  • The risk to reward ratio of Finnifty is 0.64. Whereas under Nifty 50, it is 0.61. 

Conclusion

Since its inception, the Finnifty index has shown decent performance. It has outperformed both Nifty Bank and Nifty 50 since its launch. The CAGR of Finnifty is 18.7%, while Nifty 50 and Nifty Bank reported a CAGR of 13.9% and 16.9%, respectively. Finnifty can help you earn decent returns if you have a diverse portfolio and a basic understanding of market volatility.

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Frequently Asked Questions

You cannot purchase the Finnifty index directly. If you want to invest in this index, choose a mutual fund scheme that includes Finnifty stocks with identical weightage to the index.

Another way to invest in the Finnifty index is opting for Nifty Bees. It is an exchange-traded fund (ETF) that replicates Finnifty's performance. 

The major benefit of investing in Finnifty is that it lowers non-systematic risk. Non-systematic risk is linked to lower profit margins, sales figures, revenue, and increased financing costs. Such risks have a significant influence on your profitability. But, by investing in the Finnifty index, you can diversify your risk and make attractive gains. 

Bank Nifty index includes solely banking company stocks. They have twelve stocks listed on them that have a large market capitalisation and high liquidity. On the other hand, Finnifty includes twenty financial sectors stocks from banking, insurance, fund management, housing finance, etc. Though, the stocks of Finnifty are not as liquid as Bank Nifty.