FinNifty: Everything You Need to Know About Its Valuation

Introduction to FinNifty

The NIFTY Financial Services (FinNifty) is a sectoral index on the National Stock Exchange (NSE) that tracks the performance of India’s financial services sector. Comprising 20 stocks from banks, non-banking financial companies (NBFCs), housing finance firms, financial institutions, and other financial service providers, it offers a comprehensive snapshot of the sector. The current market capitalization of FinNifty stands at Rs 57,90,128 crore.

FinNifty’s Recent Performance

Year-to-date (YTD), FinNifty has delivered an 11% return. Over the past year, the index has risen by 23%, though it slightly trails the NIFTY index, which has gained 24% over the same period. Presently, FinNifty trades 5% below its all-time high.

Price-to-Earnings (P/E) Ratio

The current P/E ratio of the FinNifty 50 stands at 17.1, below both the 5-year median of 20 and the 10-year median of 22.2. This lower ratio could reflect cautious growth expectations and broader economic uncertainty. Notably, this P/E ratio aligns closely with the 1-year median of 16.9, indicating a balanced valuation.

Price-to-Book (P/B) Ratio

FinNifty’s current P/B ratio of 2.92 sits below historical medians—3.3 for one year, 3.6 for five years, and an estimated 3.5 for ten years. This discrepancy suggests the sector may be undervalued compared to historical averages. 

Dividend Yield

At 0.88%, FinNifty’s current dividend yield is above the 1-year, 5-year, and 10-year median yields of 0.8%, signaling a higher-than-usual return through dividends. While this may attract income-focused investors, it might also reflect tempered growth expectations for the sector. The combination of a higher dividend yield and a lower P/B ratio could indicate undervaluation relative to historical standards.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.