Nifty PSU Bank

What is NIFTY PSU Bank?

The NIFTY PSU Bank is a sectoral index on the National Stock Exchange (NSE) that captures the performance and behavior of the public sector banks. It is a real-time index consisting of 12 PSU stocks that are tradeable on NSE.

This Bank index was launched on August 30, 2007, with the base date set to January 1, 2004, and the base value at 1000. Since then, NIFTY PSU Bank’s share price has breached the levels of 2,500 at ~7 P/E multiples. It is reconstituted semi-annually in order to ensure that it continues to reflect the changing dynamics of the Indian banking industry.

The NIFTY PSU Bank index is owned and managed by NSE Indices Limited, previously known as India Index Services & Products Limited. The PSU Bank index 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 PSU Bank index has a variant in the form of the NIFTY PSU Bank Total Returns Index. This index is ideal for launching index funds, ETFs and structured products and benchmarking fund portfolios.

Nifty PSU Bank Stocks Selection Criteria

The NIFTY PSU Bank share price is determined by weighing its 12 stocks on the basis of periodically capped free-float market capitalization relative to a base market capitalization value on a real-time basis.

The constituent stocks need to meet the following eligibility criteria:

1. It should be listed on the National Stock Exchange.
2. Should form a part of top 800 companies in NIFTY 500.
3. Should have at least 51% of its share capital held by the central and/or state government, whether directly or indirectly.
4. 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, assuming companies also meet the criteria of having been listed for at least 1 calendar month and have 90% trading frequency.
5. It should be a part of the Public Banking sector.
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. Since December 27, 2019, all PSU banks that are- listed & traded or not listed but permitted to trade- can be included in the index provided they fulfill the other eligibility criteria of being listed for at least one month and having a trading frequency of 90%.
9. Final selection is made based on the average free-float market capitalization by ranking the companies in descending order.
10. Should include companies if their free-float market capitalization is 1.5 times the index’s smallest constituent’s free-float market capitalization value
11. 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.
12. 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 PSU Bank Index Calculated?

The index value is calculated as follows –

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

The NIFTY PSU Bank index is reviewed semi-annually based on six months of data ending January and July. The replacement of stocks in NIFTY PSU Bank (if any) is implemented from the last trading day of March and September.