Bank Nifty can be understood as the Index, which has a list of the most liquid banks on the National Stock Exchange (NSE). It is made up of twelve leading banks, both from the public as well as the private sectors. These banks are publicly listed on the NSE.
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List of Banks in Bank Nifty
There are twelve public and private sector banks in Bank Equity. These are as follows:
- Bank of India
- Axis Bank Ltd
- ICICI Bank Limited
- HDFC Bank Limited
- Kotak bank limited
- Canara Bank
- Bank of Baroda
- IDBI Bank Limited
- Oriental Bank of Commerce
- Union Bank of India
- Punjab National Bank
- State Bank of India
History of Bank Nifty
Although introduced in September 2003, the base year for Bank Nifty is considered as January 01, 2000. This base value was taken as 1000 for the year 2000. Hence, if Bank Nifty right is currently trading at 20,000, it means that it has given around 20 times return in the past 20 years.
The values of Bank Nifty are available in real-time in the market, and the trading volume is more than the Nifty index. The Bank Nifty is the first Index with weekly expiring options, along with one of the highest volumes of trading. This makes the Bank Nifty very liquid.
Calculation of Weightage in Bank Nifty
The weightage of different banks in Bank Nifty depends on the free-float market capitalization of the twelve banks. Here, the Free-float market capitalization does not refer to the method of full capitalization. It refers to the market value of the number of shares that are actively trading at the exchange. These shares, however, do not include that of insiders, government, and promoter holdings.
One of the best ways to judge the weightage of a bank is through the free float method. A bank’s current share price generally decides the weightage and its share price. This, in turn, can directly impact the Bank Nifty movement. The innovation, corporate policies, products, corporate policies as well as the bank-specific news impact the share price of the bank, which ultimately impacts the weightage.
Future of Bank Nifty
In Bank Nifty, a futures contract is introduced with a fixed expiry date. The expired contracts can be easily rolled to the next contract. The futures contracts of Bank Nifty can be understood as derivative instruments that take value from the Bank Nifty Index.
The futures contract of Bank Nifty has three contracts that run simultaneously – the first month (near month), the next month (two-month) as well as the far month (the three-month contract). As the near month contract expires, the new far-month contract gets introduced. The futures contracts generally expire on the last working Thursday of each month.
Trading Bank Nifty Options
The trading options in Bank Nifty are contractual rights of the buyer as well as the obligatory duty of the seller. Generally, Bank Nifty options contracts are settled through cash. The Bank Nifty options contract also has three monthly contracts. After the near-month contract expiry, a far month contract is introduced.
There are 7 weekly expiring contracts in Bank Nifty. After the expiry of the near-week contract, a new weekly contract is added. Every Thursday, the weekly expiry contract expires. In case a particular Thursday is a holiday, the contract would expire a day before.
Closing Thoughts
The overall health of an economy can be measured by looking at the health of the banking system. This can be easily explained with the help of Bank Nifty. The above article illustrated all about Bank Nifty and how it works in the Indian Banking System.
