In addition to its benchmark index Nifty-50 and Nifty Bank Index, the National Stock Exchange (NSE) will launch a derivatives contract on the Nifty Financial Services Index from January 11, 2021.
The exchange commands a leading position in both the F&O contracts it offers in the Indian market. NSE has already received approval from markets regulator Securities and Exchange Board of India (Sebi) to launch derivatives on the index.
It may be recalled that NSE emerged as the largest derivatives exchange in the world in 2019 by several contracts traded, surpassing the CME Group, according to Futures Industry Association (FIA), a derivatives trade body. NSE is also ranked third in the world in the cash equities segment by several trades as per the statistics published by the World Federation of Exchanges (WFE). Its cash segment recorded the highest turnover of over ͅ 1.47 lakh crore on November 27, 2020.
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It is important to note that this move from the exchange is significant as the sector accounts for 33.5 per cent of the Nifty 500 Index.
The Nifty Financial Services Index consists of 20 stocks and is designed to reflect the behaviour and performance of the Indian financial market, which includes banks, financial institutions, housing finance companies, insurance companies and other financial services companies, the exchange said.
The Nifty Financial Services index has delivered annualised returns of 15 per cent in the past five years.
The NSE said it will offer futures and options in four serial weekly and three serial monthly contracts, excluding the monthly expiry. This is the first time that the exchange will make available weekly futures for the stock index derivatives.
According to recent investment data of foreign portfolio investors (FPIs), 48 per cent of new investment flows were channelised into the financial services sector. The sector accounted for 35 per cent of the assets under the custody of FPIs, the exchange noted.
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Further, many of the asset management companies (AMCs) have mutual fund schemes dedicated to the financial services sector theme.
The Nifty Financial Services index has a 94 per cent correlation and a beta value of 1.2 with the Nifty 50 Index. It correlates with 98 per cent with the Nifty Bank index. The Nifty Financial Services index has delivered annualized returns of 14.99 per cent in the last 5 years.
The derivatives are cash-settled with the expiry day being the last Thursday of the expiry month for the monthly contracts and the Thursday of the expiring week for weekly expiry contracts. The option contracts are European styled Call Option (CE) and Put Option (PE) with strike scheme of 30-1-30 and strike interval of 100.
