Nifty Financial Service index
Nifty Financial Service index is the new index introduced by the National Stock Exchanges and Investors are allowed to do futures and options trading in the index from January 12th 2021. In this article, we will explore what is this new Nifty Financial Service index and what is its importance.
This new Financial Service Index is an exciting product and lot of investors have shows quite some interest in this new index.
The news about the new index was first announced by the National Stock Exchange on 10th December 2020(Click Here). It had announced that the Stock exchange has received the required permission to launch the financial index and it will be soon available for trading for the investors in the National Stock exchange. The date from which the trading in the index allowed is decided as 12th January 2021.
Before the introduction of Nifty financial service, in the Indian stock exchanges, only two major indices(Nifty50 and BankNifty) are allowed to trade in Futures and Options. After the introduction of Nifty Financial index, the total services for trading in F&O became 3.
Investors are eager that this new index will give them a good opportunity to trade and the addition of a new option in F&O means an additional instrument to trade.
Criteria to be a part of Nifty Financial Services Index
Here are some of the criteria for companies to be a part of this Index:
- NIFTY Financial Services Index is computed using the free-float market capitalization method, wherein the level of the index reflects the total free-float market value of all the stocks in the index relative to a particular base market capitalization value.
- The company has to be a part of Nifty 500 to be able to qualify to be a part of this Index. But in case the number of eligible players falls below 10, then the companies will be selected from the Nifty top 800.
- The company’s trading frequency should be at least 90% in the last six months.
- The company should have a listing history of 6 months. A company, which comes out with an IPO will be eligible for inclusion in the index if it fulfils the normal eligibility criteria for the index for a 3 month period instead of a 6 month period.
- The weightage of each stock in the index is calculated based on its free-float market capitalization such that no single stock shall be more than 33% and the weightage of the top 3 stocks cumulatively shall not be more than 62% at the time of rebalancing.
- Finally, the rebalancing of the companies included in this index happens semi-annually.
Nifty Financial Services F&O Contract Specifications
Here are some of the key Nifty Financial Services Futures and Options Contract Specifications:
- The contract size for Nifty Financial services will be 40 units.
- There will be a total of 7 weekly expiring contracts and 3 monthly expiring contracts
- For Option trading, there will be a total of 30 In the Money contracts,1 At the Money contract, and 30 Out of Money contracts.
- The strike interval will be 100 for options trading i.e., the gap between two consecutive strike prices will be 100. Say, for example, if the current At the Money Strike Price is 14300, then the immediate Out of Money strike will be 14400, and the immediate In the Money strike will be 14200.
- Both Futures and Options contracts will be Cash Settled.
- The daily circuit limit for a futures contract is 10%.
Portfolio Characteristics
Index Returns
Fundamentals of Nifty Financial Service Index
Stocks in Nifty Fin
The following are the stocks in the Nifty Financial service index and their weightage in the index.
| Stock name | Weightage |
|---|---|
| HDFC Bank Ltd | 27.13% |
| Housing Development Finance Corporation | 17.51% |
| ICICI Bank Ltd | 14.14% |
| Kotak Mahindra Bank | 12.10% |
| Axis Bank Ltd | 6.46% |
| Bajaj Finance | 5.64% |
| State Bank of India | 4.06% |
| Bajaj Finserv Ltd | 2.29% |
| HDFC Life Insurance | 2.21% |
| SBI Life Insurance | 1.43% |
| Power Finance Corporation | |
| Shriram Transport Finance Company Ltd | |
| REC Ltd | |
| ICICI General Insurance Co. Ltd | |
| Cholamandalam Investment and Finance Company Limited | |
| Bajaj Holdings and Investment Limited | |
| Mahindra & Mahindra Financial Services Limited | |
| Piramal Enterprises Limited | |
| ICICI Prudential Life Insurance Company Limited | |
| HDFC AMC |
Bottom Line
Investors are already trading in huge volume in BankNifty in Futures and Options contracts. Addition of this new index will provide additional instrument for investors to invest. This will increase the trading volume.
And also Nifty Fin is supposed to represent the financial Condition of the country. though Bank Nifty is supposed to represent the Economic financial institutions condition, Nifty fin is supposedly an Upgraded version with more criteria and hence is believed to be more instrumental in representing the financial institution conditions of the country.
