Nifty vs. Bank Nifty

When it comes to the stock market, Nifty charts and Bank Nifty are viewed jointly for deciding on intraday and positional trades. Most of the time, technical analysis is also involved in the share market, and thus, one needs to consider both these charts for spotting ideas about high prospect trading. On the one hand, Bank Nifty is the index representing 12 large banking stocks that are trading on the National Stock Exchange (NSE). On the other hand, Nifty is the index representing 50 most liquid as well as large capital stocks from the NSE.
In this article, we would be discussing both Nifty and Bank Nifty as well as the relationship between the two of them.
What is Nifty?
In India, just like Sensex, Nifty is also one of the most popular equity indices. The Nifty generally comprises 50 stocks; thus, it is also referred to as Nifty-50. It is owned and operated by NSE Indices Limited. As of March 2019, the Nifty 50 Index comprises around 66.8% of the free-floating market capitalization stocks listed on NSE. Nifty 50 is a highly efficient index whose impact the cost for a 50-lakh portfolio can be about 0.02%.
The Nifty stocks operate across 12 different sectors of the Indian economy that include financial services, information technology, entertainment and media, consumer goods, pharmaceuticals, metals, cement, telecommunications, and many more. This index is reconstituted every six months. Nifty was launched on April 1, 1996, and is an efficient stock index of NSE. Investors, as well as market intermediaries, can trade and invest in it. Some other popular indices are Bank Nifty, Nifty IT, and so on.
What is the Bank Nifty?
Bank Nifty, or Nifty Bank, is an index made up of some of the largest and most liquid Indian banking stocks. It generally provides investors with a benchmark that captures the performance of the capital market of Indian bank stocks. The Nifty Bank index has a total of 12 stocks in the banking sector.
The top stocks of the Nifty Bank are HDFC Bank Ltd., with a share of 31.61%, ICICI Bank Ltd., with a share of 18.20%, Axis Bank Ltd., with a share of 13.02%, Kotak Mahindra Bank Ltd., with a share of 12.74%, and State Bank of India, with a share of 10.92%. The Nifty Bank is computed with the help of the free-float market capitalization method. The index variant comprises the Bank Nifty TRI or Nifty Bank Total Returns Index. This index was introduced in the year 2003.
The correlation between Nifty and Bank Nifty
Bank Nifty, as well as the Nifty charts, are inter-connected. Nifty Bank has a high-level association with Nifty, and it is expected that the trend will remain the same all the time. Investors and traders use the data for analyzing the charts mutually. In case one chart is not apparent, they can change it to another to look at the movement and trend of the index.
Nifty Bank has a 1.2 beta. Beta is the figure that measures the stock or index volatility. The beta value can be compared with Nifty. With a beta value of 1.2, it can be said that the Nifty Bank would always stay ahead of the Nifty. With an apparent signal by the Bank Nifty index, one can easily use it for trading.
The beta of a Nifty Bank is mostly higher than that of Nifty. Thus, most investors or traders use Nifty Bank, as it has a better movement than Nifty. Also, one should make it a practice to evaluate both the Nifty charts and Nifty Bank, as they act as an authentication tool for the trades. To take a better trading call, one needs to remain updated about the beta values of Nifty as well as Nifty Bank.
The above article was an introduction to Nifty and Nifty Bank and a brief comparison between them. Nifty Bank is highly volatile, and thus, it gives either a high gain or a high loss. One should always trade-in both Nifty as well as Nifty Bank to enhance the profit-making opportunity as well as minimize the risks.