Banks, housing finance, insurance, AMCs to NBFCs on Nifty Financial Services Index | Benefits, Performance EXPLAINED

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.

Financial services firms are crucial to the success of the economy in the long run. The financial services landscape in India is constantly changing and evolving. Banks have historically played a critical role in the financial system, channeling surplus funds from savers to borrowers, and continue to do so. However, in recent years other subsectors of the financial services including Insurance, Housing Finance, NBFCs, Asset Management Companies etc. have gained increased prominence. Similar to Banks, Housing Finance companies and NBFCs support credit creation and growth across the economy.

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Insurance companies facilitate pooling of risks so individuals and firms can focus on their core business, knowing they are financially protected against unforeseen circumstances. Asset Management Companies facilitate savings and investment and help investors achieve their financial goals. The Nifty Financial Services Index aims to capture this diversity of sub sectors within financial services and track their performance in a single index.

The Nifty Financial Services Index offers diversified exposure to Banks, Housing Finance, Insurance, NBFCs and other financial companies. Banks account for 63.1% of the weight of the Nifty Financial Services Index, followed by Housing Finance Companies at 18.5%. NBFCs and Insurance Companies have 8.1% and 8.0% weight respectively. Other Financial Services and and Financial Institutions categories cumulatively account for 2.4% of the weight of the Nifty Financial Services Index. These categories include Asset Management Companies and Public Sector Undertaking (PSU) lending institutions.
Benefits for Investors

Investors can obtain greater exposure to various subsectors of the Financial Services sector through the Nifty Financial Services Index compared to Nifty Bank Index and broad market indices. The Nifty Financial Services Index has significantly outperformed broader market indices and Nifty Bank over the long term.

The Nifty Financial Services Index 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, the Nifty Financial Services Index returned 17.3% CAGR compared to 13.3% CAGR for the Nifty 50 Index and 13.7% CAGR for the Nifty Bank Index.