Ever feel a bit lost in the stock market trading with terms like index and NIFTY? It happens to most of us. NIFTY is the collection of the top 50 companies in India, giving you a snapshot of how they’re doing. An index, on the other hand, is just a way to measure how the market is doing as a whole. But what is FINNIFTY – another one of those head-scratchers, and why is it important for investors?
In this blog, we will explain what FINNIFTY is, how it was launched, what it tracks, FINNIFTY components, how to trade its derivatives, and how it has performed over time.
- What is FINNIFTY?
- Difference Between Fin nifty and Nifty
- FINNIFTY Components
- Sectors Involved in Finnifty
- Top FINNIFTY Components by Weightage
- How to Trade FINNIFTY Derivatives?
- Summary of FINNIFTY Historical Performance: 2021- 2024
- Benefits of Investing in FINNIFTY
- Ways of Investing in FINNIFTY
- Factors Influencing Finnifty Share Prices
- Conclusion
- FAQs | FINNIFTY
What is FINNIFTY?
FINNIFTY Full Form- Nifty Financial Services Index, which is an index that measures the performance of the financial services sector in India. It was launched by the National Stock Exchange (NSE) on January 11, 2021, as a part of its efforts to provide more products and opportunities for investors.
The objective of the Nifty Financial Services Index is to mirror the patterns and outcomes of the Indian financial market, circling banks, financial institutions, housing finance, insurance companies, and other entities in the financial services sector.
Why was FINNIFTY launched?
FINNIFTY was launched to cater to the growing demand and interest in the financial services sector, which is one of the most dynamic and influential sectors in the Indian economy.
The financial services sector includes banks, insurance companies, non-banking financial companies (NBFCs), housing finance companies, and other financial intermediaries.
1. FINNIFTY was launched to provide a benchmark and a trading instrument for the financial services sector.
2. It aims to diversify the product portfolio and enhance the liquidity of the NSE.
3. It is also focused on attracting more domestic and foreign investors, especially institutional investors, who are looking for exposure to the Indian financial sector.
Difference Between Fin nifty and Nifty
| Finnifty | Nifty |
| Tracks the performance of 20 leading financial companies listed on the NSE | Tracks the performance of 50 large and liquid companies across various sectors listed on the NSE |
| Launched in September 2011 with a base value of 1000 and a base date of January 1, 2004 | Launched in April 1996 with a base value of 1000 and a base date of November 3, 1995 |
| More focused on the financial sector, which includes banks, NBFCs, insurance firms, housing finance firms, and other financial services | More diversified across different sectors, such as IT, energy, consumer goods, pharma, metals, etc. |
| May have higher volatility and risk than Nifty, as it is more sensitive to the changes in the economic conditions, government policies, and market sentiments that affect the financial sector | May have lower volatility and risk than Finnifty, as it is more balanced and representative of the overall market |
What does FINNIFTY track?
FINNIFTY tracks the performance of 20 companies that are part of the financial services sector in India. These companies are selected based on their free-float market capitalisation, trading volume, and turnover.
The index is calculated using the weighted average method, which means that the larger companies have a higher influence on the index value than the smaller ones. The index is rebalanced every six months, in June and December, to reflect the changes in the market conditions and the sector composition.
FINNIFTY Components
Fin nifty is composed of 20 stocks across different sectors like banking, housing finance, insuranc, and others.
| Company Name | Sector |
| HDFC Bank Ltd | Banking |
| HDFC Ltd | Housing Finance |
| ICICI Bank Ltd | Banking |
| Kotak Mahindra Bank Ltd | Banking |
| Axis Bank Ltd | Banking |
| Bajaj Finance Ltd | NBFC |
| State Bank of India | Banking |
| Bajaj Finserv Ltd | NBFC |
| SBI Life Insurance Co Ltd | Insurance |
| ICICI Prudential Life Insurance Co Ltd | Insurance |
| HDFC Life Insurance Co Ltd | Insurance |
| ICICI Lombard General Insurance Co Ltd | Insurance |
| IndusInd Bank Ltd | Banking |
| Muthoot Finance Ltd | NBFC |
| Cholamandalam Investment & Finance Co Ltd | NBFC |
| AU Small Finance Bank Ltd | Banking |
| Mahindra & Mahindra Financial Services Ltd | NBFC |
| Power Finance Corporation Ltd | NBFC |
| REC Ltd | NBFC |
| Shriram Transport Finance Co Ltd | NBFC |
Sectors Involved in Finnifty
The sectors involved in FINNIFTY are banking, insurance, non-banking financial companies (NBFCs), housing finance, and other financial intermediaries.
Top FINNIFTY Components by Weightage
| Company | Weightage (%) |
| HDFC Bank Ltd. | 33.16% |
| ICICI Bank Ltd. | 20.03% |
| Axis Bank Ltd. | 8.77% |
| Kotak Mahindra Bank Ltd. | 8.05% |
| State Bank of India | 7.07% |
| Bajaj Finance Ltd. | 5.85% |
| Bajaj Finserv Ltd. | 2.62% |
| HDFC Life Insurance Company Ltd. | 1.95% |
| SBI Life Insurance Company Ltd. | 1.85% |
| Shriram Finance Ltd. | 1.64% |
Data by NSE, as of 29th December 2023
How to Trade FINNIFTY Derivatives?
FINNIFTY derivatives are contracts that derive their value from the underlying FINNIFTY index. There are two types of derivatives available for trading on the NSE: futures and options.
Futures are contracts that oblige the buyer to buy or the seller to sell the underlying asset at a predetermined price & date in the future.
Options are contracts that give the buyer the right, without an obligation, to buy/ sell the underlying asset at a predetermined price & date in the future.
FINNIFTY futures and options have the following features:
• Contract size: The value of FINNIFTY futures contracts must be at least Rs. 5 lakhs upon introduction. The permitted lot size for both futures and options contracts will be the same for a
• Settlement method: The settlement method of FINNIFTY futures and options is cash settlement, which means that the difference between the contract price and the final settlement price is paid or received in cash.
FINNIFTY Expiry Time and Date
The expiry time of FINNIFTY futures and options contracts is 3:30 PM (IST), which is the closing time of the National Stock Exchange (NSE).
The expiry day of FINNIFTY futures and options contracts is the last Tuesday. For monthly contracts, the expiry date falls on the last Tuesday of the month, whereas for weekly contracts, it is set for the Tuesday of the week in which it is meant to expire. If the last Tuesday is a trading holiday, then the previous trading day is considered the FINNIFTY expiry day.
FINNIFTY Lot Size
The lot size of FINNIFTY futures and options contracts is 40, which means that each contract represents 40 units of the index. The lot size is set by the National Stock Exchange (NSE) and may vary based on market conditions.
Summary of FINNIFTY Historical Performance: 2021- 2024
As per the latest data released by NSE, these figures offer a simplified view of how FINNIFTY has performed, giving investors and traders a quick understanding of its historical trends.
Over the recent periods:
- In the last quarter, FINNIFTY saw a gain of 8.46%.
- Year-to-date, the growth is at 13.20%.
- Looking back one year, it’s been a consistent 13.20% climb.
- Over the past 5 years, the average annual growth has been 13.15%.
- Since its inception 5 years ago, the total growth has been 16.57%.
Considering the overall returns:
- In the last quarter, the total return was 8.52%.
- Year-to-date, investors have seen a total growth of 14.31%.
- Looking back one year, the total returns stand at 14.31%.
- Over the past 5 years, the total growth averages at 13.87% per year.
- Since its inception 5 years ago, the overall total return has been 17.85%.
Benefits of Investing in FINNIFTY
FINNIFTY provides exposure to the financial services sector:
- FINNIFTY offers portfolio diversification, as it consists of 20 stocks from various sub-sectors and segments of the financial services sector. The index also has a low correlation with other indices, such as Nifty 50, Nifty Bank, and Sensex, which means that it can reduce the overall risk and volatility of the portfolio.
- FINNIFTY has shown impressive performance and returns over time, outpacing the other major indices of the Indian stock market.
- FINNIFTY is the first sectoral index in India to have weekly expiry contracts, which offer more flexibility and opportunities for investors. The weekly contracts allow investors to trade more frequently, hedge their positions, and take advantage of short-term market movements.
Ways of Investing in FINNIFTY
The first step to investing in FINNIFTY is to open a free demat account. Once done, you can explore three different ways of investing in FINNIFTY: ETFs, index funds, and direct investment in FINNIFTY stocks.
- ETFs (Exchange-Traded Funds): ETFs track the performance of an underlying index, such as FINNIFTY, and trade on the stock exchange like shares. They offer low-cost, passive, and transparent investment in FINNIFTY.
- Direct Investment in FINNIFTY Stocks: This involves buying the shares of the 20 companies that are part of FINNIFTY in the same proportion as their weightage in the index. Direct investment offers active, customised, and flexible investment in FINNIFTY.
- Index Funds: Index funds replicate the portfolio of an underlying index, such as FINNIFTY, and aim to match its returns. They offer low-cost, passive, and diversified investments in FINNIFTY.
Factors Influencing Finnifty Share Prices
Understanding the dynamics of Finnifty share prices involves considering several key factors:
Market Sentiments: Investor expectations, confidence, and emotions play a pivotal role in influencing the demand and supply of Finnifty shares. The resultant impact on share prices can be observed as investors react to prevailing market sentiments.
Global Economic Conditions: Various economic indicators, including GDP growth, inflation, interest rates, and industrial production, contribute to shaping the profitability and growth prospects of the financial sector.
Government Policies: Regulatory measures, taxation policies, subsidies, reforms, and regulations imposed by governments can significantly impact the performance and competitiveness of Finnifty companies, thereby affecting share prices.
Global Events: External events like wars, natural disasters, and geopolitical tensions can have profound effects on the stability and risk appetite of financial markets, influencing Finnifty share prices.
Investor Behavior: Factors such as herd mentality, overconfidence, anchoring, and confirmation bias can impact the decision-making and trading patterns of investors, thereby influencing Finnifty share prices.
Conclusion
FINNIFTY is a new and innovative index that provides comprehensive and diversified exposure to the financial services sector in India. FINNIFTY has shown impressive performance and returns over time, outpacing the other major indices of the Indian stock market. If you are looking for a way to invest in the financial sector, FINNIFTY derivatives could be a suitable option for you.
FAQs | FINNIFTY
There are 20 stocks in FINNIFTY, representing various sectors like banks, insurance, housing finance, NBFCs, and other financial services companies.
FINNIFTY consists of 20 stocks focused on the financial services sector, while Nifty 50 has 50 stocks across diverse sectors, reflecting the broader market sentiment.
When FINNIFTY contracts expire, they are settled in cash based on the final settlement price of the underlying index. Investors settle the difference between the contract price and the final settlement price, and they can choose to roll over their positions to the next expiry cycle if they wish to continue their exposure.
The expiry day of FINNIFTY futures and options contracts is the last Tuesday. For monthly contracts, the expiry date falls on the last Tuesday of the month, whereas for weekly contracts, it is set for the Tuesday of the week in which it is meant to expire. If the last Tuesday is a trading holiday, then the previous trading day is considered the FINNIFTY expiry day.
Source- nseindia.com, niftyindices.com
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Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.