What is FINNIFTY? – Nifty Financial Services Index

Podcast Duration: 06:34

Hi doston! Angel Broking ke is podcast mein aapka swagat hai!

Dost jab aap apne streaming platform pe music select kar rahe ho, toh you probably get a readymade list of the “Most popular hits” or “Trending tracks”. These are the most popular songs globally or in India. Lekin aap apna filter thoda modify bhi kar sakte ho. Aap “Most popular Bollywood song releases” ya “Most popular hip hop tracks” bhi search kar sakte ho. Phir aapko yeh specific genre of music ke most popular tracks dikhenge, correct?

The newly announced Finnifty is something like a modified search filter. To understand Finnifty, however, aapko pehle Nifty 50 samajhne ki zaroorat hai. Ho sakta hai you already understand the concept of Nifty 50, lekin let’s make sure we are on the same page: Nifty 50 is an Index, or a collection of 50 stocks of the largest companies in the country. Largest kaise? Largest by way of free float market capitalisation, jiska formula hai stock price multiplied by number shares on market. Yeh 50 stocks alag alag sectors se rehte hai – it is compulsorily a diversified list. Yeh list har 6 maheene update kiya jata hai.

Now we’re ready to define Finnifty:

Finnifty also known as Nifty financial Services Index or just Nifty Financial Services, is just like Nifty 50, except that it focuses specifically on the stocks of financial institutions. Just like you can modify your search filter to specifically find the post popular tracks, the National Stock Exchange, in January this year, introduced the Finnifty. It is a collection of 20 stocks across banks, insurance companies, NBFCs , housing finance companies and other financial institutions or financial service companies. Bilkul Nifty 50 ke jaise hi, these stocks are selected based on their free float market capitalisation. You already know what that is right? That's the correct stock price multiplied by outstanding shares, jo hai shares on market.

The stocks listed on Finnifty are updated every six months, just like the Nifty 50.

Ab juicy section – which are the stocks that are listed on Finnifty:

· HDFC Bank

· HDFC Housing Finance

· ICICI Bank

· Kotak Bank

· Axis Bank

· Bajaj Finance

· SBI Bank

… wow clearly there’s a lot of banks on this list! Carrying on…

· HDFC Insurance

· SBI Life Insurance

· ICICI Lombard General Insurance

… so lots of insurance companies too maybe?….

· Shriram Transport Finance

· ICICI Prudential Life Insurance

· Piramal Capital and Housing Finance

· Bajaj Holdings and Investments

· Cholamandalam Investment and Finance

· HDFC Asset Management Company

· Power Finance Corporation

· REC Ltd – they’re a finance company related to the power sector

· Mahindra and Mahindra Financial

Yeh list sun ke, you may have guessed ki banks have the largest presence – over 60% – on the Finnifty Index. Housing finance companies ka almost 20% presence hai, NBFCs almost 10%, aur baaki sab have a little over 2% presence between them. Aap Nifty Financial Services ko kaise use kar sakte ho?

Same way as one uses Nifty 50 aur BSE Sensex.

Option 1: Use Finnifty for benchmarking

These indexes are popularly used as benchmarks. Stocks ke performance usually Nifty 50 ya BSE Sensex se compare kiya jata hai. Ab investors apne finance sector stocks ko yeh focused benchmarks ke saath compare kar sakte hai by using this new Nifty Financial Services Index.

Option 2: Use Finnifty like a shopping list

Alternatively, some experienced investors like to buy all 50 stocks on the index in the same weightage as they display on the index. Now in the list that we discussed earlier the weightage of the first financial company on the list, HDFC Bank is 27.13%. Dusra company, HDFC Housing Finance ka weightage hai 17.51%... and so on … weightage decrease hota hai as you go further down the list. Nifty Financial Services list ka akhri company, Mahindra and Mahindra Financial ka weightage hai 0.44%

Option 3: Ride on the back of mutual funds using Finnifty

Teesra option hai investing in mutual funds that track the stocks in the index. Some examples of these include DSP Nifty 50 Index Fund, L&T Nifty 50 Index Fund and Motilal Oswal Nifty 50 Index Fund. Bahut saare options hai – I have just named a couple.

4th option: hai to buy an Exchange Traded Fund …

jisse kehte hai ETF – that tracks the stocks and is supposed to typically reflect the performance of the fund.

Option 5: hai derivatives, also known as F&O nahi toh futures and options

That means you can buy futures contracts nahi toh options contracts for the stocks that are part of the Finnifty. The contract will have a price and an expiry date. F&O ke bare mein aur jaanne ke liye – ya concept samajhne ke liye, check out our podcast titled Futures & Options trading.

If you are asking, “How do Finnifty stocks compare with stocks on the Nifty 50?” you are asking the right question. Yeh curious aur cautious attitude aapke investment journey pe zaroor kaam aayega.

Chaliye let’s compare:

· 10 of the stocks that are listed on the Finnifty are also listed in the Nifty 50.

· These 10 stocks collectively carry almost 93% weightage on Finnifity aur inka Nifty 50 pe less than 40% weightage hai.

· Being focussed on banks and financial institutions, one might expect higher volatility on Finnifty

· The Finnifty has a 0.64 risk-reward ratio as compared to Nifty 50’s 0.61.

Ab dekhte hai ki market mein Finnifty ke liye kya reaction raha?

Finnifty ke base day pe, it went up about 140 points. It is trading at over 15,000 today. Yeh reaction ko aap positive keh sakte ho – mainly because upward movement is seen as a good thing.

Industry stakeholders se bhi kaafi excitement dikh raha hai: many stock brokers waived off brokerage charges on the Finnifty Index for the month of launch.

NSE ne bhi transaction charges waive kiya hai up until June this year.

Doston, aaj ke podcast mein bas itna hi. Main chalti hoon kuch stock market news dekhne ke liye. Fir milenge next podcast mein. Tab tak ke liye, Angel broking ki aur se alvida - and happy investing!

Investments and the securities markets are subject to market risks. Read all the related documents carefully before investing.