Calculation of Bank Nifty weightage & its formula with examples

Indian Indices Bank Nifty or Nifty Bank Index is comprised of the 12 most liquid and large capitalized Indian Banking shares of NSE . This Indian Index of Share Market has attracted a lot of attention in the world of option trading in recent years. It provides investors and market intermediaries with a benchmark that captures the capital market performance of Indian Banks stocks listed on the National Stock Exchange (NSE). Its composition is reviewed and adjusted semi-annually to ensure it accurately reflects the performance of the sector.

We, specially F&O trader (Future & option trader), have experienced volatile nature of this Index as compared to any of its constituents but ever thought why this Index behave like this?

To know this, we must know what are its Components / constituent and how the changes in Bank Nifty calculated?

At First Bank Nifty has 12 constituents having different weightage. And the weightage is determined by its free float market capital. Free Float market capital again means Value of shares available for public trading. We Can take example of data of 30^th April (As NSE adjusted the weightage on this date) to understand the calculation of How Weightage and Bank Nifty points calculated.

Now next step is multiplying weightage of every constituent to the change in % of the constituents as in below table. (Here we can take Today’s data)

And Now we got the Percentage change in BankNifty Index, which is 0.42% and we can determine the change in points in Bank Nifty and Closing Bank Nifty in following manner:

Now we got the closing Bank Nifty as 48974.21 (may differ few points due to rounding off)

This method is known as free float market capitalisation method. And for this unique method of calculation a single Re change in HDFC Bank, can move the Index almost 10 points. Which we can see in the table below.

We can see on above table, highlighted with green, how a single Re change in Share of HDFC Bank Ltd, can move the Index by 0.02% i. e. 0.02% of 48767.6 = 9.75 points. And if HDFC Bank would move 1% the Bank Nifty Index will move 0.2904% i. e. 0.2904% of 48767.6 = 141.62 point.

In above example we have assumed that Other Constituents of the BN Index remain unchanged.

Source : NSE India

What is Bank Nifty?

Bank Nifty is an Index, comprised of the 12 most liquid and large capitalized Indian Banking shares.

What are the criteria to qualify as a constituent of Bank Nifty Index?

As per NSE (National Stock Exchange of India) Eligibility Criteria for Selection of Constituent Stocks are :

i. Companies should form part of Nifty 500 at the time of review. In case, the number of eligible stocks representing a particular sector within Nifty 500 falls below 10, then deficit number of stocks shall be selected from the universe of stocks ranked within top 800 based on both average daily turnover and average daily full market capitalisation based on previous six months period data used for index rebalancing of Nifty 500.

ii. Companies should form a part of the Banking sector.

iii. The company’s trading frequency should be at least 90% in the last six months.

iv. The Company should have a minimum listing history of 1 month as on the cutoff date.

v. Companies that are allowed to trade in F&O segment are only eligible to be constituent of the index.

vi. Final selection of 12 companies shall be done based on the free-float market capitalization of the companies.

vii. Weightage of each stock in the index is calculated based on its free-float market capitalization such that no single stock shall be more than 33% and weightage of top 3 stocks cumulatively shall not be more than 62% at the time of rebalancing.

What is Option?

Option is a financial instrument that gives the buyer right to buy or sell at a predetermined price and in other hand it creates an obligation to seller to sell or buy the asset at the predetermined rate.

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