Fin Nifty, or Nifty Financial Service Index, is an index that tracks the performance of the top 20 stocks of banks, financial institutions, housing finance companies, insurance companies, and other financial companies/organizations listed on the National Stock Exchange of India (NSE). The index is computed by taking the free float market capitalization of these 20 companies and then multiplying it by the weight assigned to each stock. The weight assigned to each stock is based on its free float market capitalization.
The index was launched by the NSE Indices Limited (formerly known as India Index Services and Products Limited) in September 2007 to provide investors with a benchmark for the performance of the top 20 companies listed on the exchange. The index is a market capitalization-weighted index, which means that the larger companies in the index have a greater influence on the index overall performance.
What are the criteria for companies to be included in the index?
Stocks of companies that are a part of the Nifty 500 and belong to financial institutions, banks, housing finance, insurance companies, and other financial services are eligible to become a part of Fin Nifty. The weightage of each sub-sector in Fin Nifty is calculated as per the average free-float market capitalization. The weightage of the 20 companies representing different sub-sectors is made in such a manner that it closely matches the respective sub-sector weightage. Within each sub-sector, the stocks of those companies preferred that are listed in NSE Futures & Options (F&O) segment. Only those companies are included in the Fin Nifty index whose average free-float market capitalization is 1.5X of the average free-float market capitalization of the smallest constituent of the index. Therefore, no stock is given a weightage of more than 33%. Also, the weightage of the top three stocks cumulatively should not exceed 62% at the time of rebalancing, which happens semi-annually.
How can investors use Fin Nifty as a benchmark?
Investors can use the Fin Nifty index as a benchmark to evaluate the performance of their investment portfolios. For example, they can compare the returns of their portfolios' returns to the index returns to determine whether their portfolios are outperforming or underperforming the broader market. Investors can also use the index to identify trends and opportunities in specific sectors or industries.
In conclusion
Fin Nifty is an important benchmark for investors in India, providing a measure of the performance of the top 20 companies listed on the National Stock Exchange. By tracking the index performance, investors can gain insights into the overall health of the Indian stock market and make informed investment decisions.
Also Read:
What is GTT Order? How to use good till Triggered
Drawdown: Understanding the Concept, Risks, and Examples