What is Bank Nifty and how is it calculated?

By Advisorymandi
7-January-2019 8:41:09 AM
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Nifty Bank (BANKNIFTY) is the bank index comprises 12 most liquid and large capitalized stocks from the banking sector listed on the National Stock Exchange (NSE). It was first launched by India Index Services and Product Limited (IISL) in the year 2000. As we said earlier, the index has 12 banking stocks (public and private) trade on NSE, provide a benchmark to all investors and market intermediaries to capture the capital market performance of Indian Banks.

After 5 years, on June 13, 2005, the Futures contracts on Nifty Bank derivatives come in the market. Bank Nifty derivatives contracts based derive its value from the underlying index. Not just that the Futures and Options contracts are also available on all the underlying banking stocks of Nifty Bank.

 

What is the Lot Size of Bank Nifty?

The Bank Nifty first had the lot size of 40 shares which now changed by the NSE to the 20 shares. Later in 2018, the NSE took that decision to make a lot size small so that more people can trade. However, the maximum size per order is still the same at 2500. It is also mentioned in the NSE Circular Ref. No: 91/2018 where the NSE gave detailed information on the revised lot size of underlying indices.

List of Banks in Bank Nifty

The 12 most liquid banking stocks that are listed on the National Stock Exchange are as follows:

  • HDFC Bank
  • State Bank of India
  • ICICI Bank
  • Kotak Mahindra Bank
  • Axis Bank
  • IndusInd Bank
  • Yes Bank
  • Bank of Baroda
  • Punjab National Bank
  • Federal Bank
  • IDFC Bank

 

How is it calculated?

Bank Nifty is calculated through the free float market capitalization method. The free-float methodology is a method to calculate the market capitalization of underlying companies calculated. Unlike full-market capitalization method, free-float methodology calculates the market capitalization of the shares actively trading in the market while excluding the locked-in shares such as held by promoters, insiders, or government officials.

To calculate the Nifty Bank index, one has to take the equity’s price and multiply it with the no. of banking shares actively available in the market. The banking index is a free float market capitalization weighted index with the base date of January 01, 2000, indexed to the base value of 1000.

Computing Bank Nifty index with the free-float market capitalization method provides a better reflection of the underlying banking stocks and their movements in the market. The free-float method is very effective in calculating the Nifty Bank index which also takes into account important changes and corporate actions such as stock splits, rights, and issuance of shares among others without affecting the index.

 

Hope, this article helped you in a way you expected it to be. If you have any query or would like to add something then doesn’t forget to mention in the comment section below.

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Author: Advisorymandi

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Adviser-Pushpendra
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Adviser-Pushpendra
2 months 18 days ago

Nifty, derived from the combination of two words “National” and “Fifty”, is a major stock index introduced by the National Stock Exchange of India. It comprises 50 stocks that are actively traded on the National Stock Exchange or the NSE.
The Nifty is a market capitalization weighted index based on this Free Float Method.
Key Points while calculating NIFTY.
1995 is taken to be the base year.
The base value is set at 1000.
The nifty calculation is done taking into consideration 50 stocks that are actively traded on NSE.
These 50 top stocks belong to 24 sectors.

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