Introduction

Indices have a special place in the world of the stock market – both from investing and trading perspectives.

That’s why, on this channel, we have created videos on popular indices such as Sensex, Nifty, and Bank Nifty.

And today, we are going to talk about a budding star in the world of indices – Fin Nifty.

What is Fin Nifty

The first thing to know is that FINNIFTY is another name for Nifty Financial Services Index.  

This index was created back in 2021 to track the performance of the stocks in the Indian financial market, which includes sectors such as banks, financial institutions, housing finance, NBFC, Insurance, and other financial services companies. 

Uses

Within a few years, Fin Nifty has become very popular. Both investors and traders are considering FinNifty for trading and hedging purposes.

Today, it is widely used by mutual funds and other institutions for benchmarking their performance. It is also becoming an active trading instrument. We will discuss in detail, later in the video.

Constituents

But first, let’s understand what constitutes Fin Nifty,  right what is it made of?

It is an index of these 20 stocks, as you can see here this is the weightage of the stocks as of now. Together HDFC Bank, HDFC, ICICI Bank, and Kotak Bank constitute about 70% of the total weightage

But let’s look at this from the perspective of the sectors these stocks belong to.

 As you can see, these stocks belong to 3 main sectors: Banking, NBFCs, and Insurance sectors.

Banking, NBFCs, insurance, and financial services 

Banks- 65%

NBFCs – 25%

Insurance – 10%

As of today, banking stocks, especially private banks dominate this index, which is also a reflection of our economy. 

Remember, LIC is slated to be part of this index soon and when that does happen, the weightage of the insurance sector is bound to go up.

Ok, so that brings us to the next question – who decides which stock should be part of this index and how?

So, this index is maintained by National Stock Exchange and they follow the below process to select stocks for this particular index.

Selection criteria

NSE says that ok, first thing first, we want to see the top 500 companies of India- the best of the best. This list is already existing an it is called NIFTY 500.

Now, withi 

Step 1: Within the eligible universe, calculate the weights of each subsector based on average free-float market capitalization 

Step 2: The companies within each subsector are sorted in the descending order of the average free-float market capitalization and the final selection of companies shall be made based on the higher average free-float market capitalization to form part of the index. 

Step 4: Select companies from each sub-sector in such a manner that the weightage of selected constituents in a subsector closely matches the weightage of the subsector as determined in step 1. A preference within each sub-sector is given to companies that are available for trading in NSE’s Futures & Options segment.

All this is theoretical in nature… you dont need to worry about that too much.

Rebalancing

Every 6 months NSE checks if the stocks that are part of this index are still eligible or not. If not, then it replaces them ….natural selection.

Why another finance index?

At the time of the introduction of this index, many people (including myself) asked that if we already have Bank Nifty, what is the point of having another 

NSE wants to make more money.

FII activity –

Trading in Fin Nifty

So far we talked about the index Nifty Financial Services. Now, let’s briefly talk about how to trade this index.

Trading in the FinNifty can be 

FinNifty is available to trade in both futures and options segments. Let’s take each of them one by one. We will discuss more about it in a separate video.

Conclusion

So guys in this video we saw how