How to Diversify Your Portfolio with Nifty Bank Shares


Last updated on November 25, 2023

Diversification is an investment strategy that involves investing in different financial assets such as stocks, bonds, and mutual funds to manage risk and optimize returns. For anyone investing in the financial market, portfolio diversification is important. In this article, we will explore the potential benefits of diversifying your investment portfolio with Nifty Bank shares.

What Is Bank Nifty?

Bank Nifty or Nifty Bank, is the major benchmark index of the National Stock Exchange (NSE) used to track the performance of the Indian banking sector. It consists of the country’s largest and most liquid bank stocks according to their market cap.

Nifty Bank Shares 2023

Bank Nifty broadly represents the Indian banking sector and provides investors with a benchmark to gauge the industry’s performance. It is safe to say that when the underlying bank stocks are moving up, the Bank Nifty share price will move up, and vice versa. Accordingly, investors can easily make an informed investment decision by following the performance of the Nifty Bank on the exchange.

Read Also: Best IPOs that Doubled Investors’ Money

Stocks Present in Bank Nifty

Sl No.Bank NameMarket Capitalisation
(INR crores)
1HDFC Bank Ltd12,29,176.7527.04
2ICICI Bank Ltd6,75,270.2723.03
3Kotak Mahindra Bank Ltd3,62,356.1611.72
4State Bank of India5,26,998.3311.27
5Axis Bank Ltd2,88,168.0811.18
6IndusInd Bank Ltd1,05,916.785.58
7AU Small Finance Bank Ltd48,575.392.69
8Bandhan Bank Ltd36,510.131.98
9Bank of Baroda99,962.431.84
10Federal Bank Ltd31,037.31.68
11IDFC First Bank Ltd57,632.061.08
12Punjab National Bank65,460.490.91

Note: The data is as of 4 August 2023. The banks are listed according to their holdings in the Bank Nifty.

The stocks in Nifty Bank are added based on their weightage calculated using the free-float market capitalization method.

Details of Top 5 Bank Nifty Stocks

Since NIFTY Bank tracks the broader market, no single bank contributes more than 35% to the index. The top 5 banks according to their weightage on Nifty Bank are the following:

  1. HDFC Bank Ltd

India-based HDFC Bank offers a complete suite of financial services, including banking, insurance, and mutual funds. HDFC Bank holds the highest weightage in the Bank Nifty, meaning the performance of the bank’s stock has a significant influence on the Nifty Bank share price.

Key financial highlights of the company

  • Stock PE (TTM): 26.23
  • 5-year CAGR: 9.06%
  • Dividend Yield: 1.13%
  1. ICICI Bank Ltd

ICICI is a private-sector bank that offers a variety of banking services. It provides a range of commercial banking and treasury operations. Their business segments include retail banking, wholesale banking, treasury banking, and other banking services.

Read Also: Top Drone Stocks in India

Key financial highlights of the company

  • Stock PE (TTM): 19.51
  • 5-year CAGR: 25.11%
  • Dividend Yield: 0.80%
  1. Kotak Mahindra Bank Ltd

Kotak Mahindra Bank is part of the Bank Nifty index. It offers a complete range of retail banking, treasury, and corporate banking services. The bank is headquartered in India and also has a representative office in Dubai. 

Key financial highlights of the company

  • Stock PE (TTM): 29.3
  • 5-year CAGR: 7.31%
  • Dividend Yield: 0.08 %
  1. State Bank of India

The State Bank of India offers the whole suite of treasury, wholesale or corporate banking, retail banking, and insurance services. Through investing in Bank Nifty, you can also invest in the stocks of SBI. This is an indirect way to invest in all the bank stocks you want.

Key financial highlights of the company

  • Stock PE (TTM): 10.49
  • 5-year CAGR: 13.87%
  • Dividend Yield: 1.85%
  1. Axis Bank Ltd

Axis Bank is one of the top private banks in India, offering a complete range of banking and lending services. Its business segments include treasury, retail banking, corporate/wholesale banking, and other banking services.

Read Also: State-wise IPO in India

Key financial highlights of the company

  • Stock PE (TTM): 13.33
  • 5-year CAGR: 9.44%
  • Dividend Yield: 0.10%

Note: The 5-year CAGR has been calculated based on data available on 4 August 2023. The formula used is: CAGR = {(Final value/Start value)^(1/5) – 1} * 100

Advantages of Investing in Bank Nifty

  • Exposure to the banking sector: The banking sector plays a significant role in driving the economy. Bank Nifty allows investors to invest in dynamic Indian banking companies.
  • Diversification: Investing in Bank Nifty is an efficient way to diversify your portfolio. It lets you get exposure to the banking segment while allowing you to invest in a diversified basket of banking stocks.
  • Liquidity and large-cap stocks: Bank Nifty comprises stocks of the largest and most liquid banking stocks. Liquidity refers to the availability of a large number of buyers and sellers for a specific stock or underlying assets in the case of an index. Liquidity is influenced by investors’ interest coupled with market capitalization size.

Read Also: All-time largest IPOs in India at a glance

Nifty vs Bank Nifty

  • Nifty and Bank Nifty share a strong correlation of 0.88, meaning Nifty and Bank Nifty trends are often the same.
  • Traders often use both charts simultaneously to make investment decisions. If the trend in any of the charts is unclear, they can switch to another for more clarification.
  • Bank Nifty is more volatile compared to Nifty because of the higher concentration in a single sector.
  • Bank Nifty has a beta of 1.22, higher than Nifty, indicating higher volatility.
  • Still, the majority of investors prefer to trade in Bank Nifty because it moves considerably faster than Nifty.
  • For trading, you may assess both Bank Nifty and Nifty charts for deeper insights.

Options to Invest in Bank Nifty

  • Trading Through Derivatives – Bank Nifty derivatives, such as options and futures, trade on the exchange with Bank Nifty as the underlying asset. The price movement of the derivative is linked to that of the index. 
    Trading in Bank Nifty derivatives is a great way to diversify your portfolio and get exposure to the banking sector of India without buying the stocks directly.
  • Investing Through Mutual Funds – Another way to invest in Bank Nifty is through mutual funds like index funds. An index fund holds the same portfolio of stocks that constitute the index, in this case, the Bank Nifty. It is a good option for investors who want to avoid direct exposure to the market or are new investors.

Final Words

The Bank Nifty was created by the NSE in September 2003 to gauge the performance of the banking sector in India. While investing in Bank Nifty can help you diversify your portfolio, it also gives you exposure to the growing banking sector in India. If you want to invest in Bank Nifty, open a Demat account and track the Nifty bank share price on your Angel One app before investing.

Disclaimer: This article has been written for educational purposes only. The securities quoted are only examples and not recommendations.


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