Futures and options sample answer
Nifty Bank is a sectoral index of the National Stock Exchange of India (NSE) that comprises the most liquid and actively traded banking stocks listed on the exchange. It serves as a benchmark for the performance of the banking sector within the Indian stock market.
Nifty Bank comprises 12 major public and private sector banks, providing investors and market participants with a comprehensive view of the banking industry's health and trends. As of January 2024, top stocks in the Nifty Bank index include:
Company Name
AU Small Finance Bank Ltd.
Axis Bank Ltd.
Bandhan Bank Ltd.
Bank of Baroda
Federal Bank Ltd.
HDFC Bank Ltd.
ICICI Bank Ltd.
IDFC First Bank Ltd.
IndusInd Bank Ltd.
Kotak Mahindra Bank Ltd.
Punjab National Bank
State Bank of India
The calculation of Bank Nifty involves the establishment of a base date and value, which serve as foundational elements for the index. The base date, set as January 1st, 2000, signifies the initiation of tracking, while the base value, determined by NSE at Rs 1000, represents the index's worth on that commencement date. Notably, each bank in the index does not carry the same weight. Larger entities, such as HDFC Bank, hold a more substantial influence, while smaller entities, like IDFC Bank, have a comparatively lighter impact. This weightage is determined through the free-float market capitalisation method, wherein the size of each bank is a key factor in establishing its significance within the Bank Nifty framework.
The weightage of each stock in the Nifty Bank is determined based on its market capitalisation relative to the total market capitalisation of all the stocks in the index. The table below depicts the weightage of the top 10 stocks included in the Nifty Bank index (as of January 2024):
Stock
Weightage
HDFC Bank
29.39%
ICICI Bank
22.57%
Kotak Mahindra Bank
9.92%
Axis Bank
9.88%
9.87%
IndusInd Bank
6.43%
2.62%
AU Small Finance Bank
2.30%
Federal Bank
2.13%
IDFC First Bank
2.06%
Yes - you can trade in both - futures and options - for Bank Nifty. As of January 2024, the lot size for a Bank Nifty contract is 15 units.
The stocks for the Nifty Bank index are selected based on the free float market capitalisation methodology. The index is reviewed twice a year, and the stocks are added or removed based on parameters such as market capitalisation, liquidity, and sector representation.
The closing price of Nifty Bank, like any other financial index, is determined through a weighted average calculation of the closing prices of its constituent stocks between 3 PM to 3:30 PM. The calculation involves summing up the closing prices of all the constituent stocks and applying the respective weightage based on market capitalisation. The resulting figure is then divided by the index's divisor to obtain the final closing price.
The Nifty Bank index reflects the performance of 12 major banking companies listed on the National Stock Exchange (NSE). As a result, directly buying or selling the Nifty Bank units is not possible. However, you can trade in derivatives, such as Futures and Options, with the Nifty Bank as the underlying index. You can also invest in mutual fund schemes that are designed to specifically replicate the Bank Nifty index and its performance.