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Kolkata: Nifty bank index is one of the most closely watched indices. With the rise in fortunes of the baking sector, more and more investors are putting their money in banking stocks and monitoring this index. Over the past six month the Nifty banking index has risen 6.59% and over the past one year by 12.47%. This index is going to change from December 31 with the entry to two new stocks -- Yes Bank and Union Bank of India.
After the entry of these two stocks and the rebalancing of the index, Yes Bank's estimated weightage in the index will be 3.9% while that of Union Bank of India will be 2.6%. The National Stock Exchange (NSE) has announced the entry of these couple of banks in the index and the total number of stocks in the index will rise to 14. A significant point to note is that SEBI has capped the combined weightage of the top three banks in the index has been capped to 43%, which is a significant drop from the current 60%. This going to impact the weightage of the big private banks.
According to the estimates of the post-reorganisation structure, the weightage of HDFC Bank -- India's biggest private bank -- will go down from 27.5% to 18.9%. The second biggest private bank ICICI Bank will also have its weightage decline from 23.1% to 14%. The weightage of Kotak Mahindra Bank will also go down from the current 8.9% to 8.4%. Needless to say, the reorganisation will trim the "clout" of these three banks and make way for new entrants, offering more diversification.
Among the banks to gain from the index reorganisation will be the biggest bank in the country -- State Bank of India. The weightage of SBI will rise from 9.4% to 10% and that of Axis bank will also go up -- from 9.1% to 9.3%. Some of the PSU banks in the index will also benefit. Bank of Baroda's weightage is set to rise from 3.2% to 4.8%, that of PNB will move from 2.6% to 3.8% and that of Canara Bank will go up from 3% to 4.5%.
It must be noted that banks with higher weightage in the index have a bigger impact on the index's daily movements, which is tracked by millions including retail investors and institutions. It has another important fallout -- the weightage impacts the performance of index-related products such as ETFs (Exchange Traded Funds) and derivatives since these track the index's composition.
Weightage of a stock in an index is based on the free-float market capitalisation of each bank's stock, which is the company's market value and is considered taking only the shares available for public trading. The weightage of a bank is calculated by dividing its free-float market capitalisation divided by the sum of the free-float market capitalisations of all stocks in the index.
(Disclaimer: This article is only meant to provide information. TV9 does not recommend buying or selling shares or subscriptions of any IPO, Mutual Funds, precious metals, commodity, REITs, INVITs, any form of alternative investment instruments and crypto assets.)
