Nifty Financial Services 25/50

What is NIFTY Financial Services 25/50?

NIFTY Financial Services 25/50 is a new capped version of the already existing NIFTY Financial Services sectoral index on the National Stock Exchange (NSE) which captures the performance of the financial market in the Indian economy. It is a real-time index of 20 stocks-the same stocks from the FIN NIFTY index-that serve as banks, NBFCs, housing finance companies, financial institutions, and other financial service companies. Here, 25 refers to the maximum cap weightage of a single stock in the index and 50 means the aggregate weightage of all stocks in the index that are individually weighted at over 5%.

The basic industries eligible to be included in the NIFTY FinSrv 25/50 index are AMCs, Depositories, Clearing Houses, Exchange and Data Platforms, Financial Institutions, Financial Products Distributors, FinTech, General Insurance, Holding Companies, HFCs, Insurance Distributors, Investment Companies, Life Insurance, NBFCs, Private Sector Banks, Public Sector Banks, Rating Agencies, and Stockbroking & Allied Services.

This NIFTY Financial Services 25/50 index was launched on May 20, 2020, with the base date as January 1, 2004, and the base value at 1000. Since its inception, the NIFTY FinSrv 25/50 share price has breached the levels of 16000 at ~15x P/E multiples.

The NIFTY FinSrv 25/50 index is owned and managed by NSE Indices Limited, previously known as India Index Services & Products Limited. FinSrv 25/50 is governed by a three-tier structure that comprises the BOD of NSE Indices, the Index Advisory Committee and the Index Maintenance Sub-Committee.

NIFTY Financial Services 25/50 has a variant in the form of the NIFTY Financial Services 25/50 Total Returns Index. This index has practical applications for launching ETFs, index funds, and structured investment products. It can also be used for benchmarking fund portfolios.

How is NIFTY Financial Services 25/50 calculated? How are stocks selected for inclusion in NIFTY Financial Services 25/50?

The NIFTY Financial Services 25/50 share price is computed by weighting its 20 stocks on the basis of periodically capped free-float market capitalization relative to a base market capitalization value. 

The securities must fulfill the following eligibility criteria to be included in the NIFTY Financial Services 25/50 index:

1. Should be listed on the National Stock Exchange.
2. Should include all the constituents that are a part of the NIFTY FinServ index and should follow its composition at all times.
3. A recently listed company (IPO) can be included if it meets the above eligibility criteria for a period of three months instead of six months.

The stocks in the index will be weighted as per the following cap:

• Individual stocks should not exceed 25% 
• Aggregate weight of all the stocks that are individually weighted >5% should not exceed 50% 
• 10% buffer to be maintained for each cap limit so as to minimise the probability of passive breach of the capping limits mentioned above, over stock price movements between two quarterly rebalancing. 
• At quarterly rebalancing of the Nifty FinSrv 25/50 Index, the individual weight of each stock will be capped at 22.5%, and aggregate of the top 3 stocks will be capped at 45%, subject to individual stocks floored at 4.6% and stocks below the top 3 being individually capped at 4.5%. 

The index value is calculated as follows – 

    Index value = Current market capitalization/ (Base market capitalization * Base Index Value)

The FinSrv 25/50 index weights are realigned on a quarterly basis in the months of March, June, September, and December after the F&O expiry based on T-3 prices. Additional ad-hoc rebalancing may be initiated in case of suspension or delisting of stocks.