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Business News/ Markets / What is the FINNIFTY index and why is it significant for the Indian markets?
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What is the FINNIFTY index and why is it significant for the Indian markets?

The FINNIFTY index consists of 20 highly liquid and well-established companies that are leaders in the financial services sector. These companies are selected based on various criteria, including market capitalisation, liquidity, and representation of the sector.

The FINNIFTY index is a market capitalisation-weighted index that comprises stocks from the financial services sector of the National Stock Exchange of India (NSE). (Pixabay)Premium
The FINNIFTY index is a market capitalisation-weighted index that comprises stocks from the financial services sector of the National Stock Exchange of India (NSE). (Pixabay)

In the dynamic landscape of the Indian stock market, indices play a crucial role in tracking the performance of specific sectors, industries, or market segments. One such innovative and relatively new entrant is the FINNIFTY index.

Designed to mirror the performance of the financial services sector, the FINNIFTY index has gained attention as an important benchmark for investors, offering insights into the health and trends of the financial industry.

What is the FINNIFTY index?

The FINNIFTY index is a market capitalisation-weighted index that comprises stocks from the financial services sector of the National Stock Exchange of India (NSE).

Launched in January 2021, the index aims to provide investors with a comprehensive view of the performance of financial companies, including banks, non-banking financial institutions, insurance companies, and other entities within the sector.

What does the FINNIFTY index comprise?

The FINNIFTY index consists of 20 highly liquid and well-established companies that are leaders in the financial services sector. These companies are selected based on various criteria, including market capitalisation, liquidity, and representation of the sector.

The index is calculated using the free-float market capitalisation methodology, which takes into account the total market value of a company's outstanding shares, adjusted for shares that are not available for trading.

READ MORE: What is the MSCI Index and how does it impact the Indian stock markets?

As companies within the financial services sector experience changes in stock prices, the index value adjusts accordingly, reflecting the collective market sentiment towards the sector.

Why is the FINNIFTY index important?

The significance of the FINNIFTY index extends to various aspects of the Indian economy. Firstly, the financial services sector, a crucial cornerstone of India's economy encompassing banks, insurance, non-banking financial companies (NBFCs), and more, gains prominence through the FINNIFTY index.

This index offers investors an all-encompassing perspective on the sector's performance and trends, thereby facilitating well-informed decision-making. Moreover, it serves as an investment benchmark for investors and fund managers, allowing them to gauge the effectiveness of their strategies by comparing investment returns with the index's movement.

The index's dynamic movement also provides valuable insights into the overall health of the financial services sector, assisting investors in assessing potential risks and opportunities within the industry.

READ MORE: Index rebalancing: What is it and how does it impact the stock market?

Can you directly invest in the FINNIFTY index?

Investors are unable to directly purchase the FINNIFTY index; however, they have the opportunity to invest indirectly through mutual fund schemes that mirror the index's composition and weightage accurately, reflecting the FINNIFTY's performance.

Acquiring the FINNIFTY index itself necessitates the acquisition of all 20 constituent stocks in their corresponding weightage, an endeavor that requires considerable resources. Alternatively, engagement with FINNIFTY can be achieved through the acquisition of future contracts or options contracts.

With its composition of leading financial companies and its calculation methodology, the index offers investors a comprehensive tool for assessing sectoral trends, making investment decisions, and managing risk.

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Benchmark index tracking ETFs.
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Benchmark index tracking ETFs.

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Published: 08 Aug 2023, 02:06 PM IST
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