What is Bank Nifty?

The Bank Nifty is also a free float market cap weighted index with focus purely on the banking stocks. The Bank Nifty is already one of the most actively traded index future and option in the F&O market. It has assumed significance due to its high weightage in the Nifty and its high correlation with the Nifty. Given below is the chart of the Bank Nifty since inception:

Source: NSE

Watch What is Bank Nifty? Difference Between Nifty & Nifty Bank | How Bank Nifty is Calculated?

What does the Bank Nifty represent?

The Bank Nifty is a sectoral index with focus only on banking stocks and includes private and PSU banks. It is also one of the most actively traded indexes in the futures and options segment and it is available for F&O trading on the NSE. Bank Nifty is calculated using the free float methodology where the stocks are weighted based on the free float market capitalization. While the Bank Nifty was launched on September 15, 2003, it uses January 01, 2000 as the base year with a base value of 1000. That means at the current Bank Nifty value of ~30,000, it indicates wealth creation to the tune of 30 times over the last 19 years. The index is rebalanced semi-annually and the Bank Nifty values are available on a real time basis during trading hours. It was the first index available for weekly options trading and currently has trading volumes higher than the Nifty.

Stock-mix of the Bank Nifty Index

Being a sectoral index, the Bank Nifty only represents the banking sector; including the private banks and PSU banks. Bank Nifty represents the 12 most liquid and large capitalised stocks from the banking sector which trade on the NSE. It provides investors and market intermediaries a benchmark that captures the capital market performance of Indian banking sector.

Here are the top 10 stocks in the Bank Nifty by free float market cap weight.

Source: NSE

The private banks have an inordinately large weightage in the Bank Nifty, which is hardly surprising considering the way PSU banks have underperformed in the last few years due to NPA challenges. Clearly, HDFC Bank with the highest free float market cap has a disproportionately large weightage in the Bank Nifty.