Understanding the NIFTY PSU Bank Index for Investors?

You might have heard of NIFTY Smallcap 100, NIFTY AUTO, and other indices. These indices are reliable tools for investors interested in benchmarking and research. The NIFTY PSU Bank is one of the popular indices in India that investors use for multiple purposes. It is a sectoral index that helps us understand the performance of the Public Sector Undertaking (PSU) banks in India. Read on to understand more about the NIFTY PSU.

What is NIFTY PSU Bank?

NIFTY PSU Bank is a sectoral index that helps understand the performance of the PSU banks in the country. It includes several PSU banks that are listed on the National Stock Exchange (NSE). Investors do not have to go through multiple company sheets, documents, and reports to get an idea of the PSU banking sector. They can view the NIFTY PSU Bank indexs value to gauge the entire industry’s performance. The index is made up of stocks of twelve successful banks in the country.

Investors in the country often rely on the NIFTY PSU Bank index for benchmarking. Many investors interested in the banking sector try to replicate the performance of the NIFTY PSU for higher returns. The value of the index has grown in the past few years, indicating the growth of PSU banks in India. While many investors try to replicate the index’s performance, some find financial products linked to the NIFTY PSU index. For instance, you can find several ETFs tracking the performance of the NIFTY PSU Bank index.

How is NIFTY PSU Bank Calculated?

The NIFTY PSU Bank index value is calculated based on the free-float market cap of each stock. Before we delve deeper, it is essential to understand what the free-float factor for a Nifty psu PSU Bank stock is. You might already know that the current market value of all shares of a company is its market cap. However, all public bank shares include those held by owners, insiders, and promoters. These shares are not available to the general public for trading.

For the same rationale, removing such shares from the total market capitalisation is essential. The free-float market cap of an entity is the current market value of all shares available for trading. Now that you have understood the concept of the free-float market cap, let us get to the calculation part.

A PSU bank must meet some conditions to get selected in the NIFTY PSU Bank index. For instance, one of the conditions says that 51% of the NIFTY PSU Bank share capital of a bank must be held by a government entity to be selected in the index. Another condition states that a bank with a trading frequency of 90% or more in the past 6 months is eligible to become a constituent in the index.

At present, 12 PSU banks in India are included in the Nifty PSU Bank stocks. The free-float market capitalisation of each participant is calculated. These companies are ranked based on the average free-float market cap in the index. Once the free-float market cap is calculated, you can calculate the index value with this formula:

Index Value = (Market Capitalisation / Base Free-Float Market Cap) * Base Value of the Index

Each stock has a fixed weight. The higher the weightage of a stock, the more it contributes to the index value. Each stock’s weightage will not always be the same for the index. NSE might rebalance the weights of different stocks as and when required. NSE adjusts the index so that it may reflect the accurate performance of the industry sector. Because of this, it is essential to check the current value of the NIFTY PSU Bank index before making a decision.

Composition of NIFTY PSU Bank

Whether you are using the NIFTY PSU Bank share or the NIFTY Smallcap 100 index, it is essential to know the constituents. The constituents of an index will contribute to its value. It has 12 constituents, which are PSU banks in India. The index tracks the performance of these 12 PSU banks at all times.

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The constituents of the this Bank index are State Bank of India, Bank of Baroda, Canara Bank, Punjab National Bank, Union Bank of India, Indian Bank, Bank of India, Bank of Maharashtra, Indian Overseas Bank, Central Bank of India, UCO Bank, and Punjab & Sind Bank.

How to Invest in NIFTY PSU Bank?

You cannot directly invest in the NIFTY PSU Bank index. A sectoral index is only meant for analysing the performance of the entire industry sector. Indices can be used for investment research, replication, and benchmarking. If you are interested in the banks included in the index, you can purchase their stocks individually on the NSE.

Many investors try to replicate the NIFTY PSU Bank index in their portfolios. It can be done by including the index’s constituents in your portfolio. Financial products linked to the NIFTY PSU Bank index are also available in the market. You can find several Exchange Traded Fund schemes replicating this index. These ETFs track the performance of this NIFTY to generate returns.

Factors Affecting NIFTY PSU Bank

The NIFTY PSU Bank index tracks the performance of stocks of 12 financial institutions. You might know that the stock performance is affected by several internal and external factors. When the stock performance is impacted, the value of the NIFTY PSU Bank index also changes. Here are the factors that affect the performance.

  • Government Policies and Regulations

    It includes financial institutions that are 51% owned by a government entity. Even though the central/state government is directly/indirectly involved in a PSU bank, the regulatory framework plays a role. Government policies and compliance norms can impact the performance of PSU banks, thus impacting the index value.

  • Defaulted Loans

    Lending is among the primary operations for most PSU banks in India. However, the financial performance of a PSU bank might plummet due to bad or defaulted loans. When more borrowers return the loans, the bank gains revenue. Since the financial performance is connected with the stock performance, it impacts the index value.

  • Market and Economic Factors

    Interest rates, inflation, liquidity, investor sentiment, and other market and economic factors impact the NIFTY PSU Bank index.

  • Corporate Changes

    Corporate changes like mergers, acquisitions, and restructuring can impact a bank’s financial performance. When the financial performance of PSU banks improves, the index value rises. Technology implementations and ownership change can also improve the performance of a PSU bank.

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Investors must check NIFTY PSU Bank, NIFTY Auto, Nifty Smallcap 100 chart, and other indices to make the right decisions. A sectoral index like the NIFTY PSU Bank can help analyse the performance of the entire industry sector. Investors can replicate the performance of the NIFTY PSU Bank index or search for related ETFs. Check the current value of the NIFTY PSU Bank index now!

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