Nifty Private Bank

What is Nifty Private Bank Index?

NIFTY Private Bank is a sectoral index on the National Stock Exchange (NSE) which captures the performance of the Indian banks from the private sector on a real-time basis. It is constituted of 10 tradeable listed stocks that are engaged in the private banking and financial services business. Originally, the constituent’s weight was capped at 25%. However, since April 2019, the cap has been moved up to 33%.  

This NIFTY Private Bank index was launched on January 5, 2016, with the base date as April 1, 2005, and the base value at 1000. The NIFTY Private Bank share price since inception, has breached the levels of 17,000 at ~18x P/E multiples. It is reconstituted semi-annually in order to ensure that it continues to reflect the changing dynamics of the private banking industry.

The NIFTY Private Bank index is owned and managed by NSE Indices Limited, previously known as India Index Services & Products Limited. The Private Bank index is governed by a three-tier structure comprising:

• BOD of NSE Indices: responsible for managing the index as per a detailed framework.
• Index Advisory Committee (Equity): responsible for providing guidance on macro issues related to the index.
• Index Maintenance Sub-Committee: responsible for the maintenance of the index’s methodology and stock selection criteria.

NIFTY Private Bank has a variant in the form of the NIFTY Private Bank Total Returns Index. This index is ideal for benchmarking fund portfolios and for launching ETFs, index funds, and other structured investment products.

How is NIFTY Private Bank calculated? How are stocks selected for inclusion in NIFTY Private Bank?

The NIFTY Private Bank share price is computed by weighting its 10 stocks on the basis of periodically capped free-float market capitalization relative to a base market capitalization value on a real-time basis.

In order to be considered for inclusion in the NIFTY Private Bank index, the securities must fulfill the following eligibility criteria:

1. Should be listed on the National Stock Exchange.
2. Should form a part of NIFTY 500.
3. If the number of eligible stocks falls below 10, then in such cases, the deficit number of stocks shall be selected from the universe of top 800 ranked stocks based on both average daily turnover and average daily full market capitalization data of the previous six months from NIFTY 500’s universe.
4. Should be a part of the private banking sector.
5. Should exclude securities whose >50% ownership is in the hands of the central/state government.
6. Should have a trading frequency of at least 90% in the past six months.
7. Should have a listing history of at least six months.
8. 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.
9. Should be available for derivatives trading on NSE’s Futures & Options segment.
10. Should adhere to the cap of 33% in case of a single stock and 62% for the top 3 stocks cumulatively at the time of rebalancing.

How is NIFTY Private Bank Calculated?

The index value is calculated as follows – 

Index Value = Current Index Market Capitalization/ (Base Free Float Market Capitalization * Base Index Value)

Where,

Current Index Market Capitalization = Shares o/s * IWF * Capping factor * Price 

IWF (Investible Weight Factors) = 1 as it is based on market capitalization method 

The NIFTY Private Bank index is rebalanced semi-annually based on six months of data, with the cutoff date being January 31 and July 31 of each year. The replacement of stocks in NIFTY Private Bank (if any) is implemented on a semi-annual basis and is effective from the last trading day of March and September. Securities are excluded in case of suspension, delisting or occurrence of corporate events of the kind involving arrangement/demerger/acquisition.