All about Nifty Financial Services

The previous chapter on the Nifty Bank Index was quite interesting, wasn’t it? Although it is the most popular sectoral index, the Nifty Bank Index is far from the only one that’s available for trading. There’s also another major sectoral index that garners much interest from traders and investors alike, and that is the Nifty Financial Services Index. 

Before we get into the specifics of this index, here’s something that you need to know. The National Stock Exchange has two different types of financial services indices: 

• The Nifty Financial Services Index 
• The Nifty Financial Services 25/50 Index

In this chapter, we’ll take a look at both of them, although with an increased focus on the Nifty Financial Services Index. Now, let’s get on with it. 

What is the Nifty Financial Services Index?

Just like Nifty Bank, the Nifty Financial Services Index is another sectoral index that consists of a number of companies that operate under the Indian financial services sector. The index includes banking companies, Non-Banking Financial Companies (NBFCs), Asset Management Companies (AMCs), and insurance companies, among others.  

Compared to Nifty Bank, the Nifty Financial Services Index is broader and contains as many as 20 different companies. This allows investors and traders to easily gauge the performance of the Indian financial market as a whole. Additionally, fund managers can also use this index to compare and benchmark the performance of their mutual fund with that of this index.

What are the constituents of Nifty Financial Services?

So, what are the Nifty Financial Services index stocks? Here’s a quick look at the 20 constituents of the Nifty Financial Services index along with their index weightage as on January 20, 2020.

Now, since we’ve already taken an in-depth look at many of the banks in this list in our previous chapter on Nifty Bank Index, let’s focus on the other companies in this list.

Here’s a quick overview of the companies under the Nifty Financial Services Index. 

1. Bajaj Finserv

• Incorporated in the year 2007, Bajaj Finserv is a company that operates under multiple business verticals. 
• The core business of the company is in insurance, wealth management, lending, and asset management. 
• The diversified products and services offered by Bajaj Finserv are designed to cater to salaried employees, professionals, and SMEs. 

2. HDFC Life

• Started in the year 2000, HDFC Life is a joint venture between Housing Development Finance Corporation (HDFC) and Standard Life Aberdeen. 
• The company’s core business is insurance.
• HDFC Life offers term insurance, life insurance, savings, health insurance, retirement plans, and ULIPs, among others. 

3. SBI Life

• SBI Life, a joint venture between State Bank of India and BNP Paribas Cardif, kicked off its operations in the year 2001. 
• The core business of SBI Life is insurance, with the company offering multiple products in the life insurance segment that cater to both individuals and groups. 

4. ICICI Lombard General Insurance

• Established in the year 2001, ICICI Lombard General Insurance is again a joint venture between ICICI Bank and Fairfax Financial Holdings. 
• The company offers a host of general insurance products. 
• Car insurance, travel insurance, two wheeler insurance, health insurance, weather insurance, and home insurance, are a few of the products that ICICI Lombard General Insurance has on offer.

5. ICICI Prudential Life Insurance

• ICICI Prudential Life Insurance is the life insurance undertaking of ICICI Bank and was founded in the year 2001, in conjunction with Prudential PLC. 
• The company offers a plethora of insurance and insurance focused products such as term insurance, health insurance, ULIP, savings plans, and retirement plans.   

6. Bajaj Finance

• Started in 1987, Bajaj Finance is currently a subsidiary of Bajaj Finserv. 
• The company’s core business lies in providing lending and financing to consumers, SMEs, and commercial businesses. 
• In addition to the above, Bajaj Finance is involved in the wealth management business as well. 

7. Bajaj Holdings

• Incorporated in 1945, Bajaj Holdings is a registered Non-Banking Financial Institution (NBFC). 
• The entity essentially acts as a holding company, with predominant stakes in Bajaj Auto, Bajaj Finserv, and Maharashtra Scooters, among others. 
• The revenue that the company generates mostly comes from dividends and  interest payments from the investments held by it. 

8. Cholamandalam Investment and Finance

• Founded in 1978, Cholamandalam Investment and Finance is yet again another NBFC. 
• The core business of the company is lending and financing to both individuals and SMEs. 
• Vehicle financing, home loans, loans against properties, rural and agricultural loans, and SME loans are a few of the products that the company offers. 

9. Shriram Transport Finance

• Shriram Transport Finance started its operations in the year 1979 as an NBFC. 
• Though the company features ‘Transport Finance’ in its name, its business is not just restricted to providing commercial vehicle loans. 
• The entity also provides business loans, deposits, working capital loans, life insurance, and Emergency Credit Line Guarantee Scheme (ECLGS). 

10. Mahindra & Mahindra Financial Services

• Kicking off its operations in 1991, Mahindra & Mahindra Financial services is an NBFC that provides a wide variety of financing solutions. 
• The company is one of the few NBFCs that provide financial and lending services to the rural population of the country.
• The entity has a very diversified lending portfolio and even provides insurance and investment services as well.  

11. Power Finance Corporation (PFC)

• Established in 1986, Power Finance Corporation is one of the few public sector NBFCs in India. 
• The company lends and finances exclusively to the power sector. 
• PFC offers both fund and non-fund support to entities in the Indian power sector.  

12. REC

• Formerly known as Rural Electrification Corporation, the REC is again another public sector undertaking that provides financing and lending solutions to other entities in the power sector.
• The company is a subsidiary of the Power Finance Corporation. 
• However, unlike PFC, the REC focuses primarily on providing loans and financing rural electrification projects alone.   

13. HDFC

• Housing Development Finance Corporation, abbreviated as HDFC, was founded in 1977. 
• The company is involved in providing housing and commercial property finance to both resident and non-resident individuals. 
• With an extensive housing and commercial loan product portfolio, HDFC is one of India’s largest housing finance providers.  

14. HDFC Asset Management

• Set up in 1999 as a joint venture between HDFC and Standard Life Investments, HDFC Asset Management is essentially a mutual fund house.
• With more than Rs. 4.1 trillion in AUM (Assets Under Management), the company is one of the country’s largest asset management companies. 
• The entity offers an extensive range of mutual funds that are categorized according to the type and purpose of the fund.  

15. Piramal Enterprises

• A part of the Piramal Group of companies, Piramal Enterprises is a company with multiple business verticals, one of which is financial services.  
• The entity provides capital and housing finance solutions and wealth management solutions to a wide range of consumers. 

Trading in the Nifty Financial Services index

Traders and investors can buy and sell derivatives contracts such as futures and options with the Nifty Financial Services Index as the underlying asset to profit from its short-term price movements. Let’s take a look at a few of the important contract specifications of the index for better understanding. 

Compared to the Nifty Bank Index, participants prefer to trade in derivatives of Nifty Financial Services since it offers a better exposure to the Indian financial sector. As a matter of fact, more than 8 thousand crores worth of the index’s units are traded every single session, making the Nifty Financial Services Index one of the most liquid sectoral index counters in the Indian stock market.   

What is the Nifty Financial Services 25/50 Index?

This index is essentially a capped variant of the Nifty Financial Services Index. According to the index methodology, the maximum weightage of a single stock in the index is capped at 25%. In addition to that, there’s another condition. The aggregate weightage of all stocks whose individual weights are more than 5% is capped at 50%.

Other than the cap on the weightage of stocks in the index, there’s absolutely no difference between this index and the Nifty Financial Services. Even the constituents are the same across the two indexes. That said, trading in the Nifty Financial Services 25/50 index is not possible, since the NSE hasn’t launched any derivative contracts with the index as the underlying. 

S&P BSE Finance: The BSE alternative

Now that we’ve taken an in-depth look at the Nifty Financial Services Index, let’s just quickly run through the BSE’s very own alternative - the S&P BSE Finance.

Unlike the Nifty Financial Services index, the S&P BSE Finance is broader and far more extensive. There are as many as 109 constituents in the index and includes banking, NBFC, insurance, and credit rating companies, among others. Here’s a quick glimpse of a few of the key constituents of the index. 

1. HDFC Bank 
2. Housing Development Finance Corporation
3. ICICI Bank
4. Kotak Mahindra Bank
5. Axis Bank
6. State Bank of India
7. Bajaj Finance
8. IndusInd Bank
9. Bajaj Finserv
10. HDFC Life Insurance Company

Notice how many of the constituents in this index tend to overlap with that of the Nifty Financial Services? In addition to that, there are also several others that are not present in the Nifty index as well. The stocks listed above are just 10 of the top weighted constituents in the index. There are around 99 more stocks listed in the index. You can check out the full list of constituents on BSE’s website. 

Wrapping up

With this, we’ll wrap up this chapter on Nifty Financial Services. In the next one, we’ll be taking a look at a relatively smaller, but undoubtedly important, sectoral index - the Nifty Auto. 

A quick recap

• The National Stock Exchange has two different types of financial services indices: the Nifty Financial Services Index and the Nifty Financial Services 25/50 Index.
• The Nifty Financial Services Index is a sectoral index that consists of a number of companies that operate under the Indian financial services sector. 
• The index includes banking companies, Non-Banking Financial Companies (NBFCs), Asset Management Companies (AMCs), and insurance companies, among others.  
• It contains as many as 20 different companies. This allows investors and traders to easily gauge the performance of the Indian financial market as a whole.
• The companies in this index are HDFC Bank, Kotak Mahindra Bank, ICICI Bank, State Bank of India, Axis Bank, Bajaj Finserv, HDFC Life, SBI Life, ICICI Lombard General Insurance, ICICI Prudential Life Insurance, Bajaj Finance, Bajaj Holdings, Cholamandalam Investment and Finance, Shriram Transport Finance, Mahindra & Mahindra Financial Services, Power Finance Corporation, REC, HDFC, HDFC Asset Management and Piramal Enterprises.
• The Nifty Financial Services 25/50 Index is essentially a capped variant of the Nifty Financial Services Index. 
• According to the index methodology, the maximum weightage of a single stock in this index is capped at 25%. 
• In addition to that, there’s another condition. The aggregate weightage of all stocks whose individual weights are more than 5% is capped at 50%.
• The BSE’s equivalent financial services sectoral index is the S&P BSE Finance.
• Unlike the Nifty Financial Services index, the S&P BSE Finance is broader and far more extensive. There are as many as 109 constituents in the index and includes banking, NBFC, insurance, and credit rating companies, among others.