What is FINNIFTY? Know Its Index & Stock Weightage | Espresso

Finnifty Index - Components, Weightage and Trends

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. 

Published on 07 February 2023

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.

What is FINNIFTY

In January 2021, the National Stock Exchange of India introduced FINNIFTY, which is Nifty Financial Services. It includes banks, insurance companies, housing finance, and all other companies offering financial services. The index includes a plethora of stocks with different finnifty weightage.

FINNIFTY is known to track the performance of financial institutions over time. The index can have a maximum of twenty stocks, and the weight of every stock is determined by its free float capitalization in the market.

Free float market capitalization is determined through the following formula:

Outstanding shares x investable weight factors x price / IWF

The IWF will be higher when there are more shares listed as public. The number can be figured out from the shareholding pattern reported by the company to a stock exchange.

Financial entities ensure that the economy of a country can succeed and survive. In a country like India, where the economy is constantly evolving, financial entities have a huge role to play.

Banks offer borrower’s funds acquired from surplus savings. Housing finance institutions and NBFCs facilitate credit creation and the growth of the overall economy.

While understanding “what is FINNITY,” you need to know that it helps reflect the characteristics of the different subsectors in the economy. When it comes to a single index, FINNIFTY serves as the symbol for Nifty Financial Services.

Only companies included under the Nifty 500 are eligible for Nifty Financial Services. Furthermore, investors need to remember that the base value of the index is 1000. 

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:

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

FINNIFTY Stocks and Weightage

You will find several well-known and prominent stocks labeled as FINNIFTY stocks. HDFC Bank is known to hold the maximum weightage under this index. Look at the list of the top ten FINNIFTY weightage stocks:

  1. HDFC Bank Limited: 24.77%
  2. Housing Development Finance Corporation: 18.74%
  3. ICICI Bank Limited: 15.69 %
  4. Kotak Mahindra Bank Limited: 10.14 %
  5. Axis Bank Limited: 7.56 %
  6. State Bank of India: 5.77 %
  7. Bajaj Finance Limited: 4.93 %
  8. Bajaj Finserv Limited: 2.56 %
  9. HDFC Life Insurance Company Limited: 1.65 %
  10. SBI Life Insurance Company Limited: 1.60 %

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.

How To Buy The FINNIFTY Index?

No investor can directly purchase the index. But they are allowed to invest via mutual fund schemes that have a weightage equal to FINNIFTY’s results. 

Investors willing to purchase the FINNIFTY index should buy 20 stock constitutions according to the mentioned weightage. An alternative includes purchasing the Nifty Bees. The Nifty Bee is the ETF on the index known to replicate its performance.

Why Should you Invest In FINNIFTY?

The key benefit of investing in FINNIFTY is the way it helps with reducing the non-systematic risk. It can include financial as well as business risks. Events like strikes, declining revenues, low-profit margins, and increased financial costs are all factors contributing to non-systematic risks. But diversifying the risks is quite easy by investing in multiple companies.

Sectors Involved In FINNIFTY

Banks are known to represent a weightage of 63.1% of FINNIFTY. They represent 20.3% of the Nifty 500 Index and 26.5% of the Nifty 50 Index. On the other hand, banks represent 100% of the Nifty Bank Index.

When it comes to insurance companies, they have a weightage of 8.0% in FINNIFTY. They also weigh 2.5% in the Nifty 500 and Nifty 50.

The subsectors gain more prominent exposure by this particular index than broad market indices. This index offers a more targeted approach to investors who are on the hunt for certain sectors.

Additionally, the approach of the index toward different sectors of the economy is quite diverse. Other indexes, like the Nifty Bank Index, are not that diversified.

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.

Chandresh Khona
Team Espresso

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