NSE to launch derivatives contracts on Nifty Financial Services index

The financial stocks have the biggest sectoral weight in the domestic stock markets

The National Stock Exchange (NSE) on Thursday said it will launch derivatives contracts on the Nifty Financial Services index. This will be only the third equity index to have futures and options (F&O) contracts.

At present, NSE offers derivatives contracts for the benchmark Nifty50 and the Bank Nifty index. The Nifty Financial Services comprises 20 stocks, mainly banks, non-banking financial companies (NBFCs) and insurance stocks — including HDFC Bank, HDFC, ICICI Bank, and Kotak Mahindra Bank.

Given the high weighting of banking stocks, the index largely moves in lockstep with the Bank Nifty index. “Nifty Financial Services has a correlation of 98 per cent with the Nifty Bank index. The Nifty Financial Services index has delivered annualised returns of 15 per cent in the last five years,” said NSE in a release.

Financial stocks have the biggest sectoral weight in the domestic stock markets. They account for a third of the top 500 companies. It is also the biggest sector in terms of foreign investment. Last month, nearly half of the $8 billion worth of foreign portfolio investment went into financial stocks. Over a third of FPI assets in India are into financial stocks.

Derivatives trading in the Nifty Financial Services index will commence from January 11. Given the high interest in financial stocks, the index has the potential to become as popular as the Bank Nifty index.