BSE BANKEX Index: A Comprehensive Overview

In today’s economic structure, banks are indispensable and thus investing in banks is often looked at as a great investment opportunity. However, it is not possible for every person who is interested in investing in banks to track the performance of the banks, is it? There are multiple banks listed on the Stock exchanges in India. Thus, BSE came up with the BANKEX index in 2003 to help investors track the performance of banks easily. This article will revolve around the bse bank index, its constituents, selection criteria, factors affecting the index, calculation, investment process, and more. 

BSE BANKEX Index – Overview & Constituents 

The BANKEX Index is an S&P BSE index that is constituted of the top ten stocks of the banking sector. The stocks also form a part of the BSE 500 index. These stocks together account for over 90% of the banking sector’s market capitalization and thus help in tracking the entire sector. 

Apart from tracking the banking sector, this index is used as a benchmark by multiple mutual funds tracking the banking sector, PMS strategies, and other investment schemes and portfolios which include banking stocks follow this index as a benchmark often. 

The constituents of the index include – 

1. HDFC BANK 
2. ICICI BANK 
3. AXIS BANK 
4. STATE BANK OF INDIA
5. KOTAK MAHINDRA BANK 
6. INDUSIND BANK 
7. FEDERAL BANK 
8. BANK OF BARODA 
9. YES BANK 
10. CANARA BANK

Selection Criteria

The stocks in the BSE BANKEX index are selected based on – 

• Past listing requirements: The stock must have been listed at least three months back. Only in the case of fresh banking stocks whose market capitalization is amongst the top ten stocks in the entire BSE universe. 
• Trading records: During the past three months the stocks must have been traded every day when the market was open. 
• Market capitalization: The market capitalization must be within the top 10 banking stocks listed on BSE. 

This index is rebalanced semiannually in June and December. 

Factors Affecting BSE BANKEX Index

The BSE BANKEX index is constituted of the bank stocks mostly affected by the following factors – 

• Monetary Policies:b If the monetary policies are changed by the RBI then the bank stocks get affected either way. If the constituent stock prices get affected, that affects the index as a whole. 
• Interest rates: Changes in the interest rates affect the demand for loans and deposits in any banking organization which affects the index. 
• Inflation rate: The interest rate is directly proportional to the inflation rate in an economy. If the inflation increases sharply, RBI tends to increase the interest rate and vice versa. This again can change the dynamics of the BSE banking index. 

While the above factors affect the BANKEX index the most, there are other factors as well which can affect it to some extent like – 

• Liquidity in the market 
• Overall market sentiment
• Earnings reports 
• Exchange rates
• Dividends 

BSE BANKEX Index Calculation Method

The BANKEX index is calculated using the Modified Market Cap Weighted Method. This method adds the top ten stocks from the BSE 500 companies to the index. 

For the calculation of the index – 

• The free-float market cap is first taken, and then the weightage of the stocks is determined.  
• Then according to the modified weightage, the modified market cap is calculated
• The modified weights of each stock can be up to 22%
• Then all the bank’s market cap is added 

Then using this formula below the index value is calculated – 

𝐼𝑛𝑑𝑒𝑥𝑀𝑎𝑟𝑘𝑒𝑡𝑉𝑎𝑙𝑢𝑒 = ∑𝑃𝑖 ∗ 𝑆ℎ𝑎𝑟𝑒𝑠𝑖 ∗ 𝐼𝑊𝐹𝑖 ∗𝐹𝑥𝑅𝑎𝑡𝑒

Here, 

Pi = Price of constituting stocks

Sharesi = Number of stocks

IWFi = Stock’s float factor

FxRate = Foreign Exchange rate

Performance and Returns

The performance of the BANKEX index has been consistent in the past years however, in the recent past due to the volatility in the market, and negative sentiments regarding high interest rates and no rate cuts, the index has given negative returns. The 3-month return has been recorded at negative 0.14%, while in the past month, it had declined 2.29%. But if you look at the YTD, it is 8.86%, the 1-year return stands at 22.19%, and the annualized return like 5-year return and 10-year return stands at 12.21% and 12.32% respectively. 

Risk and Volatility

While the performance of the bse bank index has been consistent, the risk factor involved in the index needs to be kept in mind as well. The annualized risk of this index for 3-year has been 15.47% until now, the 5-year risk is around 28.08% and the 10-year is 24.10%. 

How to Invest in the BSE BANKEX Index?

You can invest in the Bank Nifty index using ETFs, or index funds, or you can trade them on the trading platform. You can also trade Bank Nifty futures, and options in the F&O section of Shoonya’s app. To do so, you have to add the index to your watchlist following these steps – 

• Open the Shoonya app.
• Head to the “Watchlist” tab located at the bottom of your screen.
• In the search bar, type “NIFTY IN” or “SENSEX IN” add it to the watch-list, and then you will be able to see the indices.
• Once you find your desired index, click on add option given on the right side
• Now you can see the index on the watchlist. 

Conclusion

Investing in the banking sector in an economy that is growing can be one of the best investment decisions. However, it is not possible to track each of the banking stocks every day to see how they are performing, isn’t it? Thus, the BSE BANKEX index which is constituted of the top banking sector stocks replicates the banking sector as a whole and you can invest in the index via index funds as well or you can invest in the bankex stocks of the index directly.  

Trade in Bankex Index – Open Your Free Demat Account Today!

FAQs |BSE BANKEX Index

Source: BSESensex

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Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.