• HDFC securities
• 27 Mar 2023
• Knowledge Centre

 

 

A stock market index is a statistical source useful for measuring market fluctuations. An index is comprised of stocks sharing similar characteristics like the same market capitalisation, sector, and performance. Referring to a stock index helps you gauge the performance of a particular market segment or the market as a whole. One such stock market index is FINNIFTY.

What is FINNIFTY?

Launched in January 2021 by the National Stock Exchange (NSE), FINNIFTY stands for Nifty Financial Services Index. It reflects the performance of the companies in the financial sector and includes banks, financial institutions, housing finance companies, insurance companies, and other financial services companies.

The Indian financial services sector plays a crucial role in the growth of the economy. The Nifty Financial Services Index or FINNIFTY is designed to reflect the behaviour and performance of the Indian financial market. The index can be used for a variety of purposes such as benchmarking fund portfolios, launching index funds, ETFs and structured products.

How is Finnifty calculated?

The Nifty Financial Services index is comprised of 20 stocks listed on the NSE. The weight of each stock depends on its free float capitalization value in the market. The index is re-balanced on a semi-annual basis.

FINNIFTY is computed using the free float market capitalization method. Here, 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 Nifty Financial Services index has a base value of 1000 points.

You can calculate a company’s free float market capitalisation using the following formula:

Free float market capitalisation = Outstanding shares X Price X Investible Weight Factors

Note, a higher Investible Weight Factor (IWF) means a higher number of the company’s shares under public shareholding listed. You can find out about the number of stocks of a company listed as public by checking the shareholding pattern reported by the company to the stock exchange.

How to trade in Finnifty?

You can trade in the Nifty Financial Services index through its derivatives products, Futures and Options. This gives you a chance to hedge and speculate. Nifty and Bank Nifty are the other two index trading options you can find on NSE.

The expiry date of FINNIFTY derivates is the last Tuesday of the month for a monthly contract. The expiry day for weekly contracts is every Tuesday. In case, Tuesday is a market holiday, the contract expires the previous working day i.e., Monday.

The NSE has introduced the futures and options in three serial monthly contracts and seven serial weekly contracts on offer.

Another way to invest in FINNIFTY is by opting for an Index Fund or Exchange Traded Fund (ETF) that tracks this index. It gives you a chance to reap good returns and safeguard from the risk associated with direct stock investments.

Top constituents by weightage

Company	Weight (%)
HDFC Bank	23.64
ICICI Bank	20.00
Housing Development Finance Corporation	15.78
Kotak Mahindra Bank	8.41
Axis Bank	7.66
State Bank of India	6.73
Bajaj Finance	5.46
Bajaj Finserv	2.42
SBI Life Insurance Company	1.69
HDFC Life Insurance Company	1.62

Source: NSE Indices; Data as on February 28, 2023