Nifty Financial Services Index is ready to be traded!
You now have a new and interesting Index to trade on! It’s the Nifty Financial Services Index (NFSI) which will be open for trade in derivatives segment from Monday Jan 11, 2020.
The Nifty Financial Services Index tracks the performance of Indian financial services companies including banks, housing finance, insurance, NBFCs, other financial services companies etc. The index comprises a maximum of 20 stocks and a stock’s weight is based on its free float market capitalization.
As we always encourage our traders and investors to take informed decisions, we bring to you the most needed and important points that you should know about NFSI before you start trading in it.
Let’s go one by one
Constituents of NFSI as on December 29, 2020
Investors can obtain greater exposure to various subsectors of the Financial Services sector through NFSI compared to Nifty Bank Index and broad market indices
NFSI weights (%) Vs Nifty 50 Index, Nifty 500 Index and Nifty Bank Index
As seen above, Banks account for 63.1% weight of the NFSI compared to 26.5% in the Nifty 50 Index, 20.3% in the Nifty 500 Index and 100.0% in the Nifty Bank Index, as of December 29,2020. Similarly, the weight of Insurance companies in NFSI is 8.0% compared to 2.5% in the Nifty 50 Index and Nifty 500 Index and 0.0% in the Nifty Bank Index.
Thus, the NFSI gives investors more targeted and larger exposure to these subsectors of the Financial Services sector than broad market indices. Likewise, NFSI provides more diversified exposure to various subsectors of financial services sector as compared to exposure to only banking sector in case of Nifty Bank Index
The Performance Table. NFSI Vs Nifty 50 Index, Nifty Bank and Nifty 500
NFSI has outperformed both the Nifty 50 Index and Nifty Bank since inception (Jan 01, 2004), with 18.7% CAGR return against 13.9% return for the Nifty 50 Index and 16.9% CAGR return for the Nifty Bank Index. In the last 5 years, over the period of December 31, 2015 to December 29, 2020, NFSI returned 17.3% CAGR compared to 13.3% CAGR for the Nifty 50 Index and 13.7% CAGR for the Nifty Bank Index.
Instances of outperformance of Nifty Financial Services Index vs Nifty 50 Index on a daily rolling return basis
From the table above, based on daily rolling returns, for a 5-year investment horizon, NFSI has outperformed the Nifty 50 Index 99.3% of the time. The frequency of outperformance rises to 100% when we consider longer time horizon of 7 years and 10 years. Outperformance of the NFSI over the Nifty 50 Index is also observed over shorter periods. For example, for 1-year investment horizon, based on daily rolling return analysis, the Index has outperformed the Nifty 50 Index 69.2% of the time.
There are lots of expectations on its growth in the coming days and this opens up new opportunities for trading. Let’s therefore, make the best use of it.