Bank Nifty (CNX Bank Nifty Index)
Bank Nifty (CNX Bank Nifty Index) is comprised of the most liquid and large capitalized Indian Banking stocks. The index includes top 12 banking stocks listed on the National Stock Exchange (NSE) that represents approximately 92.2% of the free float market capitalization of the Banking Sector in India as on Mar 31, 2015. Bank Nifty Index is a broad-based benchmark that is diversified across public and private banks that captures the performance of Indian Banks in India.
The Bank Nifty Index composition do not remains same always as the stocks which do not perform and inturn leads to a fall in their market capitalization. So these under performing bank stocks are replaced by some other bank which performs and have their market cap more than the underperformers. Few years ago, the Bank Nifty Index had a big weightage of public banks which were later replaced by the private performing banks. Even today out of 12 Banks in Bank Nifty index only 5 are public banks which captures only 13% of the total market capitalization of the 12 Bank nifty stocks as on Mar 31, 2016.
The BankNifty Index is computed using free-float adjusted market capitalization with base date of Jan 1, 2000 indexed to base value of 1000. The level of the index reflects the market value of all the stocks in the index relative to particular base market capitalization value.
The following chart displays the components of the BankNifty Index as on Mar 31st, 2015. [visualizer id=”664″]
Chart – I below displays the Daily BankNifty Spot Chart
|Date||Daily Net Gains|
|18 May 2009||+1071.5|
|05 Sept 2013||+836.65|
|09 May 2014||+713.1|
|19 Sept 2013||+700.8|
|25 Jan 2008||+618.4|
|Date||Daily % Gains|
|18 May 2009||+18.81%|
|13 Oct 2008||+7.83%|
|23 July 2008||+9.48%|
|5 Sept 2013||+9.46%|
|3 Nov 2008||+7.83%|
|Date||Daily Net Loss|
|21 Jan 2008||-700.95|
|03 Mar 2008||-640.9|
|24 Oct 2008||-622.35|
|06 July 2009||-619.6|
|16 Aug 2013||-575.55|
|Date||Daily % Losses|
|24 Oct 2008||-12.62%|
|30 Mar 2009||-8.42%|
|29 July 2008||-8.40%|
|06 July 2009||-8.19%|
|13 Mar 2008||-7.74%|
|25 Sept 2014||Record turnover of Rs. 65,470 crores in Bank Nifty Derivatives|
|28 Aug 2014||Bank Nifty closes at all time high of 15,819.15|
|11 Dec 2007||Bank Nifty crosses 10,000 mark|
|13 June 2005||Derivatives on Bank Nifty Introduced|
How to Trade BankNifty?
A trader who wishes to get an exposure to the BankNifty Index has basically three choices. Let us take an illustration that Mr. Shrinivasan has Rs. 4,00,000 investment capital and he wants to utilize this capital to get exposure to the BankNifty Index. He can do so by choosing any of the below option:-
Option I – Buy all BankNifty Stocks
Buy all the twelve banking stocks in the same proportion as they are in the BankNifty index. So, Mr. Shrinivasan had to allocate 27.5% of Rs. 4 lac to ICICI Bank, 25.7% of Rs. 4 lacs to HDFC Bank Ltd, 13.9% of 4 lacs to SBI and so on. This will create a basket of 12 banking stocks which will result in similar returns as will be registered by the BankNifty Index during the same period of investment.
Option II – BankNifty Index ETF
With the growth and development of new products in the market the task of the investor has become easy, convenient and flexible. So, with the introduction of Index ETFs in the market, the investor can seek to match the performance of the Index by investing in ETFs units, in this case it is BankNifty ETF.
So, He can buy BankNifty Index ETF worth of Rs. 4,00,000, which is for this example is BankBees. BankBees ETF seeks to replicate, net of expenses, the BankNifty Index. At present, BankBees is quoting at Rs. 1600 approximately 1/10th of the Index Level.
Read : – Why & How to trade BankNifty ETF
Option III – Trading Bank Nifty Futures
Buy BankNifty futures on margin, taking advantage of approximately 10:1 leverage. Long term traders have to roll over their futures contract as and when existing contract expires.
Future contract on BankNifty Index was launched on June 13th, 2005. BankNifty Futures derive its value from its underlying i.e. BankNifty Index.
Read Articles :-
Trading Futures Market to get a detailed illustration of why to trade futures and how a futures trade work in real market.
Trading BankNifty Futures to understand how to trade BankNifty Futures.
Key Events to Watch For
RBI Monetary Policy
Quarterly Results of Bank Stocks (Specially Top Constituents like ICICI Bank, HDFC Bank or SBI)
KNOWLEDGE IS POWER!