Home » Personal Finance » Indexing Banking’s Pulse

Indexing Banking’s Pulse

by tavaga
Bank Nifty

The Bank Nifty, a sub-index on the NSE is useful to track the banking sector.

Source: Tavaga Research

As the passive investing universe sees more permissions being granted for and the launch of new products, indices at market exchanges are set to get more spotlight. From the flagship indices at India’s premier stock exchanges like the Nifty (NSE) and Sensex (BSE) to the sector-specific sub-indices that act as bellwethers of their industries, they are key to passive investments. One such index at India’s largest stock exchange by volume, NSE, is the Bank Nifty.

What is the Bank Nifty?

The Nifty bank index which is also known as the ‘Bank Nifty’ index, is the index that tracks the banking sector comprising of 12 banking stocks. The Bank Nifty index was created by the NSE in September 2003, to gauge the capital market performance of one of the critical service sectors in India, Banking.

An index represents the performance of a segment of the financial market by tracking a group of diversified but representative constituent securities from the market, in a certain weightage ratio. The Bank Nifty share price is basically the value of the index at a particular point in time.

The Nifty bank index, being a benchmark for the banking industry, is supposed to be representative. So, no single bank stock has a weight of more than 30 percent on the index, while the weight of the top three stocks together totals to 62% of the overall index. 

The NSE bank stocks chosen for the Nifty bank index were done for their free-float market capitalization and includes private and public sector banks.

The largest banks on the Nifty bank index are HDFC Bank, with around Rs 7.93 lakh crore market cap and 28.5 percent weightage, ICICI Bank with Re 3.91 lakh-crore market cap and 20.5 percent weightage, and Axis bank with Rs 2.09 lakh crore market cap and a weightage of 13.23 percent on the index. All the figures above are as of March 31, 2021.

Tavaga is everything you need to start saving for your goals, stay on track, and achieve them in time. 

Download Now:


Bank Nifty weightage

The table below illustrates the break up of the index bank stocks and their weightage:-

Source: NSE, Tavaga Research (as of March 31st 2021)

As the largest three banks together constitute more than 50 percent of the Bank Nifty weightage, the movement in their stock prices considerably affects the index’s value as well.

Here is a graph to show how the stock prices of the largest three affect the Bank Nifty value:-

Source: Google Finance, Tavaga Research, as of 6th April 2021

Bank Nifty Price

While there is no Bank Nifty share price, as it is not a single stock being traded on the NSE, the value of the Bank Nifty, symbolic of the bank stocks and based on the constitution of the index, is updated in real-time in a trading day, much like other stock prices. 

If we are asked, “How do you find the trend of bank Nifty,” the answer would be to look at the bourse. 

A Bank Nifty live chart will tell us how the index has moved in a trading day. NSE keeps a tab of the movements and we may find the latest price and the trend of the Bank Nifty index from its website and brokers. It would amount to us tracking the index. 

Passive investment products such as ETFs (exchange-traded funds) and index funds track benchmarks this way (ie. follow their value or price movements) to generate returns for the investor. Besides passive investment products, derivative instruments also exist that earn off the Bank Nifty index. Derivative instruments derive their value from the underlying security, which is Bank Nifty in this case.

Derivatives Traded on Bank Nifty index

Futures and options (F&O) contracts of Bank Nifty can be traded on the exchange. Both futures and options contracts of up to three months are available on the exchange. In the month of January, for example, the derivative contracts for January, February, and March will be available for trading on the exchange along with contracts of Bank Nifty weekly expiry. Bank Nifty option chain is a list of all option contracts expiring on a particular date, sorted in the order of their strike price. Bank Nifty option chain can be used to determine the bank nifty future based on volatility and Open Interest (OI).

What is the Lot Size of Bank Nifty?

Lot sizes refer to F&O contracts clubbed together for trading. The Bank Nifty lot size is 25 contracts grouped together. You can further trade in multiples of the lot size like 50,75 or 100 etc

A lot of derivatives contracts standardizes the contracts and helps the trader know easily the number of contracts being bought in a trade. Depending on the price and volume of the security being traded, lot sizes may differ.

What is Bank Nifty Expiry?

The Bank Nifty expiry refers to the end of the validity of the derivative instruments with the Bank Nifty as its underlying asset. 

The expiry date of these derivative contracts (F&O) is the last Thursday of the expiry month; should the last Thursday be a trading holiday, then the working day before the last Thursday will be considered as the expiry day.

The demand for Bank Nifty F&O contracts led NSE to launch weekly contracts in May 2016. Such contracts expire every Thursday following their launch, and a new weekly contract is launched thereafter. 

There are a total of seven weekly expiry contracts, excluding the expiry week of the monthly contracts.

Of course, when it comes to the settlement of Bank Nifty F&O contracts, at the end of each contract, the underlying assets have to be delivered or received by the related parties by way of a cash settlement. For Stock Derivatives, cash settlements against underlying assets in derivative contracts were allowed until October 2019, but SEBI has mandated physical settlement now for all stock derivatives.

Bank Nifty Option Chain

Bank Nifty options are popular among F&O traders. For traders, a Bank Nifty option chain is the go-to document.

An option chain is a page with key information about the options contract of a stock or index whose options are being traded in the market. It includes details such as open interest (total outstanding contracts), volume, implied volatility, the last traded price, the bid and ask quantity for both call and put options at all the strike prices at which the options contract is available in the market for a given validity.

Included below is an option chain on Bank Nifty:- 

Option Chain (Equity Derivatives)

Source: NSE, Tavaga Research, As of 6th April 2021

The table will change with the changes in the spot price of the Nifty bank index. The options which are in the money are in yellow, while the rest are the ones out of money

The Bank Nifty option chain lets traders identify the support and resistance levels. By checking the open interest data for both call and put options, the trader may identify the breakout level for the trade.

Banking News’ Impact on Bank Nifty

The Bank Nifty is sensitive to bad news in banking, including the recent ones, given its representative nature and function. 

Punjab & Maharashtra Co-operative (PMC) Bank

The cooperative bank, PMC, saw severe restrictions levied on it by RBI, last September (24th), following 73 percent of its advances given to HDIL that went belly-up. Even its retail depositors were barred from withdrawing their own savings. The tremors in the sector extended to the Bank Nifty as well. The dent in public confidence in the banking sector took a toll. On September 25, it opened at around 400 points lower than the previous day, as shown below:-

Bank Nifty Performance
Source: Tavaga Research

Yes Bank Crisis

The Yes Bank crisis in October hit the Bank Nifty worse than PMC. Yes Bank holds a weightage of 5.2 percent in the index, and it has fallen from a high of Rs 393 in August, last year, to Rs 46.75 in December of this year. It was on October 1, that its share price nosedived 22.8 percent to Rs 32 a share, following the news of the sale of pledged shares of promoters. The Bank Nifty took it hard, as it plummeted and opened at around 450 points lower on 3rd October. The slide continued for a few more days.

YES bank impact on bank nifty
Source: Tavaga Research

Covid-19 impact

A fall in the Nifty Bank Index can be seen around mid-March 2020, symbolizing the impact of the Covid-19 pandemic and the nationwide lockdown on the banking sector.

Source: Google Finance, Tavaga Research

From the above Bank Nifty Chart, it can be seen that over the last few months, the index has risen from the downturn it faced in March 2020. In February 2021, the Bank Nifty Index touched an all-time high at 37,708. However, with the end of the moratorium relief and the RBI’s one-time restructuring option, the hidden impact of Covid-19 on bank books remains unknown. The quality of assets in the banking system is expected to deteriorate going forward.

On December 14, 2019, RBI, in a risk assessment report, found out that Punjab National Bank (PNB) had not reported bad loans worth Rs 2,617 crores in fiscal 2019.

Even the largest bank in India, SBI has under-reported bad loans of Rs 11,932 crore, as reported this December.

Is the Bank Nifty Relevant?

The Indian banking space has 22 private sector banks, 12 public sector banks, 49 foreign banks, 56 regional rural banks, 1,562 urban cooperative banks, and 94,384 rural cooperative banks and. It may seem unfair to use an index of 12 bank Nifty stocks to gauge the performance of such a spread of players. 

But indices are meant for arming us with a statistical measure to track the overall performance of a market or one of its sections. In this case, a section of the stock market.

The formula for the Nifty bank index is such that it becomes comparable against the constituents of the market, ie. bank Nifty stocks, in this case. Their performance at the bourse may be measured against the index, giving equity shareholders of banks and day traders of bank stocks an additional tool apart from the overall market index, the Nifty 50.

Bank Nifty vs S&P BSE Bankex

The Bank Nifty index is not the only Indian bank index. There is the S&P BSE Bankex index as well, on the rival BSE. 

The key differences between the two are:-

  1. The S&P BSE Bankex index is made up of 10 stocks, while NSE’s Bank Nifty has 12 stocks as its constituents. They have nine constituting bank stocks common.

2. The trading volume on the S&P BSE Bankex index is thinner compared to the Bank Nifty.

3. The S&P BSE Bankex index is more progressive than the Bank Nifty on one aspect. It accounts for an ESG (environment, social, and governance) factor called the ESG carbon characteristics. It shows the extent of environmental damage, if any, inflicted by the constituting banks, valuable information for the conscionable investor.

5-Year Performance Comparison between Nifty Bank and BSE Sensex

Source: Google Finance, Tavaga Research | as of 6th April 2021

Bank Indices Around the World

The banking sector has the power to make or mar the financial fabric the world over, as seen in the 2008 subprime crisis and its ripples across the globe.

Tracking its performance are many indices such as the KBW Nasdaq Global Bank Index (US), and Dow Jones US Bank Index. The KBW bank index is one of the oldest bank indices, established in 1991. 

MSCI World Banks Index

The MSCI World Banks Index consists of large and mid-cap stocks belonging to the Banks industry group according to the Global Industry Classification Standards (GICS). The stocks are constituted into the index from 23 developed market countries.

Cumulative and Annual Performance of the MSCI World Banks Index and Comparison with other Global Indices

Cumulative and Annual Performance of the MSCI World Banks Index and Comparison with other Global Indices
Source: MSCI, Tavaga Research

Top 10 Constituents of MSCI World Banks Index and their weightage

Top 10 Constituents of MSCI World Banks Index and their weightage
Source: MSCI, Tavaga Research

Different Types of Indices at NSE

NSE has a lot more indices than the Nifty 50 and the Bank Nifty. It has categorized the indices as follows. :-

Broad market indices: These are the indices that track the broad market or overall stock market.

Some of the popular examples are the Nifty 50, Nifty Next 50, Nifty 100, Nifty 200, and Nifty Midcap 50

1-Year Performance Comparison between Nifty 50 and Nifty Next 50

Source: Google Finance, Tavaga Research | as of 6th April 2021

Sectoral Indices: These are indices that track market sectors and include Nifty bank, Nifty auto, Nifty IT, Nifty media, and Nifty metal.

1-Year Performace Comparison between Nifty Bank and Nifty Auto

Source: Google Finance, Tavaga Research | as of 6th April 2021

Thematic Indices: These are indices tracking a theme of investment such as public sector stocks, and MNC stocks. For example, there is the Nifty commodities, Nifty CPSE, and Nifty energy.

1-Year Performance Comparison between Nifty Energy and Nifty Infrastructure

Source: Google Finance, Tavaga Research | as of 6th April 2021

Fixed-income Indices: These indices are a benchmark for fixed-income securities such as government bonds. The Nifty GS 10year, Nifty GS composite are some of the examples.

Of course, the Bank Nifty is one of the more popular indices at the NSE and understandably so. 

As banks creak under the piles of bad loans and their asset quality comes under a cloud, it has to be seen how the index holds up with upsets in the sector.


Related Posts


pokemon masters unlimited gems March 17, 2020 - 9:09 pm

Hey There. I found your blog using msn. This is a very well
written article. I’ll be sure to bookmark it and come back to read more of your
useful information. Thanks for the post. I will certainly comeback.

Obat Cytotec Asli Karawang March 20, 2020 - 7:28 pm

Thankfulness to my father who shared with me concerning this weblog, this blog is in fact remarkable.

Jonnie April 6, 2020 - 2:05 am

Very soon this web page will be famous among all blogging
viewers, due to it’s fastidious posts

dong ho zenith April 14, 2020 - 1:16 am

Keep on writing, great job!

health insurance usa costs April 18, 2020 - 10:24 pm

It’s not my first time to go to see this web page, i am vissiting this
web site very often and takie good facts from here.

สล็อตออนไลน์ April 20, 2020 - 6:47 am

Then, the excitement begins. Of course, the game requires some strategies so that you can a person may do many may might win big amounts of degrees of variety of varieties of levels of amount of money.

gameauland.com April 27, 2020 - 12:26 am

Great post. Ӏ used to Ƅe checking constantly
this weblog and I am inspired! Extremely helpful
info рarticularly the last part 🙂 I care fоr sսch informɑtion much.

I ԝas seeking tһiѕ certain informɑtion for a veгү lengthy time.

Ꭲhank you ɑnd good luck.

medicare Eligibility April 27, 2020 - 12:24 pm

Very good info. Lucky me I discovered your blog by accident.
I hve book-marked it for later!

ปั้มไลค์ June 1, 2020 - 5:34 am

Like!! Great article post.Really thank you! Really Cool.

http://louisoakue.tblogz.com/the-smart-Trick-of-taste-restaurant-college-park-florida-that-no-one-is-discussing-10302492 July 11, 2020 - 4:53 pm

Very rapidly this web site will be famous amid all blogging users,
due to it’s good articles

How is Bank Nifty effective in summarizing economic health? - Prix Constantin August 5, 2020 - 2:29 pm

[…] weekly options, they have inevitably widened the scope when it comes to trading opportunities for a Bank Nifty trader. As of now, the trader can be listed in a weekly option contract by repaying fewer premiums […]

Bank Nifty Weightage - September 7, 2020 - 3:11 pm

[…] people are having the question about What is the bank Nifty and what are the advantages of investing in it. If you are regularly started investing in it you […]

w88 September 13, 2020 - 8:03 pm

I like what you guys tend to be up too. This sort of clever work and reporting!
Keep up the excellent works guys I’ve included you guys to our blogroll.

Visit my web blog w88

US Presidential Election | India's Fiscal Deficit | Auto Sales | GST Revenue November 2, 2020 - 12:32 pm

[…] the PSU banks and private banks declining by more than 20% YTD. This resulted in a total wipeout of Bank Nifty’s outperformance of four years over the Nifty 50 index in just the first half of […]

5 Factors Fueling The Markets As Sensex & Nifty End At Lifetime Highs November 9, 2020 - 6:59 pm

[…] and IT have outperformed the rest of the market sectors. Nifty Bank is also building upon the quarterly earnings and gaining momentum. The financial services sector […]

สล็อตเว็บตรง September 22, 2022 - 5:24 pm

Outstanding specifics you wrote listed here..Great things…I experience you’ve made some seriously attention-grabbing variables.Maintain the good get the job completed.

คาสิโนออนไลน์ ฝาก ถอนไม่มีขั้นต่ํา September 29, 2022 - 2:44 pm

I’m about to look at this. I’ll be sure to return. several many thanks for sharing. and Also This short article delivers The sunshine in which we can observe the truth. this is excellent 1 and supplies indepth facts. a lot of thanks for this brilliant report… ทางเข้าสล็อต เว็บพนันออนไลน์ https://in1.bet/

สล็อตออนไลน์ September 30, 2022 - 12:20 am

I had been hunting through a number of of your written content on This website Which i conceive this World wide web Web-site is absolutely instructional ! Keep on putting up.

สล็อตเว็บตรง October 7, 2022 - 11:46 pm

Excellent web site! Does one’ve any Thoughts and hints for aspiring writers? Considering the fact that I’m heading to start out my Web-site quickly, but I’m a tad lose on Practically every thing. Several lots of many thanks! https://in1.bet/

สล็อตเว็บตรง October 7, 2022 - 11:48 pm

Superb generate-up but I was wondering if you might make a bit extra on this challenge? I’d be truly thankful if you could possibly possibly elaborate a bit further far more. Many thanks beforehand! https://in1.bet/

สล็อตเว็บตรง November 5, 2022 - 8:57 am

Wow! This can be Probably the most realistic weblogs We have ever arrive on on thesubject. Basically excellent details! I’m also an authority Using this subject matter so I am able to totally grasp your Electrical power.

ทางเข้าสล็อต November 9, 2022 - 7:37 pm

Thanks with the website crammed with a great number of information. Halting by your weblog aided me to possess what I were looking for. Now my job has started to become so simple as ABC. บาคาร่าออนไลน์

ทางเข้าสล็อต November 10, 2022 - 7:03 pm

Exceptional set up. I had been typically examining this Internet site, Which i’m amazed! Quite beneficial facts specifically the last portion, I search after this type of particulars an awesome deal. I was Getting this specific details for a long time period. As a result of this blog site my exploration has finished. บาคาร่าออนไลน์

ทางเข้าสล็อต November 24, 2022 - 9:03 pm

Remarkable short article, it is particularly valuable! I quietly begun With this particular, and i am getting a lot more acquainted with it better! Delights, retain accomplishing quite a bit a lot more and further superb! <a href=https://iznine.com/

ปั้มไลค์ December 10, 2022 - 3:58 pm

I really like your article thanks for sharing.


Leave a Comment