What Is Bank Nifty?
Bank Nifty is a stock market index that represents the performance of the top 12 banking stocks listed on the National Stock Exchange (NSE) of India. The index provides insights into the overall health of the banking sector in India.
The index is calculated using the free-float market capitalization methodology, similar to the Nifty 50. Bank Nifty is widely followed by investors, analysts, and traders as a benchmark for the banking sector.
- The Bank Nifty index consists of 12 major banking companies in India.
- The index is free-float market capitalization weighted, meaning only the shares available for trading are considered.
- It is a popular trading instrument for derivative traders.
- It is widely used by traders to gain exposure to the banking sector through futures and options.
How Is Bank Nifty Calculated?
The Bank Nifty index is calculated using the free-float market capitalization method. This method only takes into account the number of shares that are readily available for trading in the market, excluding shares held by promoters or government entities.
Step-by-Step Calculation Formula
The formula used to calculate Bank Nifty is:
Bank Nifty = (Sum of Free-Float Market Capitalization of 12 Banks / Base Market Capitalization) × Base Value
Where:
- Free-Float Market Capitalization: This is the market value of shares that are available for public trading, excluding shares held by promoters or governments.
- Base Market Capitalization: The market capitalization of the index at the base period, which is set at 1000 points in 2000.
- Base Value: The starting value of the Bank Nifty index (set at 1000 points in 2000).
Example Calculation
If the free-float market capitalization of all 12 companies in the Bank Nifty is ₹2,000 crore and the base market capitalization is ₹1,500 crore, then:
Bank Nifty = (₹2,000 crore / ₹1,500 crore) × 1000 = 1333.33
This means the Bank Nifty has increased by 33.33% from its base period.
Companies in Bank Nifty
| Company | Sector | Weightage (%) |
|---|---|---|
| HDFC Bank | Banking | 25.2% |
| ICICI Bank | Banking | 22.3% |
| State Bank of India | Banking | 20.4% |
| Axis Bank | Banking | 12.7% |
| Kotak Mahindra Bank | Banking | 6.8% |
| IndusInd Bank | Banking | 4.9% |
| Bandhan Bank | Banking | 3.2% |
| Punjab National Bank | Banking | 2.8% |
| Bank of Baroda | Banking | 2.3% |
| Canara Bank | Banking | 2.2% |
| Union Bank of India | Banking | 1.8% |
| Federal Bank | Banking | 1.5% |
The weightage of each company is based on its free-float market capitalization and its influence in the index. As you can see, the largest banks such as HDFC Bank, ICICI Bank, and SBI have the highest weightage in the Bank Nifty index.
Why Is Bank Nifty Important?
Bank Nifty serves as an important benchmark for the performance of the Indian banking sector. Traders use this index to:
- Gauge the overall performance of the banking sector in India.
- Track the impact of major events and economic policies on the banking sector.
- Trade Bank Nifty futures and options to gain leveraged exposure to the sector.