Financials account for nearly a third of Nifty

Financial stocks now account for nearly a third of all those in the benchmark Nifty index of the National Stock Exchange, up from about 25 per cent in December last year.

The index contribution was 31.4 per cent at end-June (it was 32.4 per cent in April) from stocks of the banking and financial institutions sector, as investors flock to the growth-engine sector in hope of a turnaround in the economy.



Experts say this also means more risk if there are sharp declines in the market. “The weightage of the index could go up higher as stock performance improves. But, if the market falls, the impact on banking stocks will be that much higher at such levels of index weightage,” said Kunj B Bansal, chief investment officer (CIO), equity, Centrum Wealth Management.



In the market volatility since April, while the markets fell about four per cent, the banking index has remained flat, up 0.2 per cent. The rise in the index contribution was led by the improvement in the stock performance of private lenders — HDFC Bank, Axis and Kotak Mahindra. During this period, another private lender, YES Bank, was added, further providing a boost to the financial stocks segment in the Nifty. YES Bank accounts for nearly one per cent in the Nifty. IDFC was removed from the index from May.



While the weightage of private banks has been going up, those of state-owned ones has waned. State Bank of India has seen its weightage move to 2.8 per cent as of June, down from 3.2 per cent in January. That of Bank of Baroda fell to 0.46 per cent from 0.61 in the first six months of this year. Punjab National Bank has seen its weightage dip to 0.35 per cent from 0.47 per cent during the period.

ICICI Bank, most valuable financial stock in the index in December 2014, now occupies fourth position in the overall Nifty and is the third most valuable financial stock, below HDFC Bank and HDFC. Experts said concerns about high exposure to bad loans had led to poor stock performance and the drop in its weightage.“Banks will continue to fuel the growth engine of our economy and the Nifty is a reflection of that. As the economy revives, the weightage of banking stocks will continue to be higher, unless the other sectors also start contributing,” said Aneesh Srivastava, CIO, IDBI Federal Life Insurance.

The rising contribution of banking stocks is also a measure of the declining weightage of the information technology and health care sectors, experts said.