How SEBI's new rules will reshape Nifty Bank index
What's the story
The Securities and Exchange Board of India (SEBI) has announced new eligibility criteria, mainly affecting the Nifty Bank index. The guidelines include staggered deadlines for the implementation of new weight caps and index expansion, rather than derivative eligibility rules. The changes are aimed at making derivatives more representative and preventing concentration in a few large stocks.
Weightage changes
Top 3 constituents' weightage to be reduced
As per the new rules, the weight of the top constituents of an index will be capped at 20%, down from the current 33%. The combined weight of the top three constituents can't exceed 45%, a reduction from the current limit of 62%. This means that HDFC Bank, ICICI Bank, and State Bank of India (SBI)—the top three Nifty Bank constituents—will see their weightage gradually reduced.
Index expansion
Nifty Bank to expand to 14 stocks from 12
The new rules also mandate that all non-benchmark indices with derivatives, including the Nifty Bank, must have at least 14 stocks. Currently, the Nifty Bank has only 12 constituents. This could pave the way for stocks like Yes Bank, Indian Bank, Union Bank of India, and Bank of India to be included in the index. The adjustment will be done in four tranches until March 31, 2026.
Inflow potential
Potential inflows from the inclusion of new stocks
According to Nuvama Alternative & Quantitative Research, the inclusion of Yes Bank and Indian Bank in the Nifty Bank could bring inflows of $104.7 million and $72.3 million, respectively. If all four lenders are included, potential inflows could be even higher: $107.7 million for Yes Bank, $74.3 million for Indian Bank, $67.7 million for Union Bank, and $41.5 million for Bank of India.
Stock performance
PSU banks surge on SEBI's announcement
Following SEBI's announcement, shares of Union Bank of India and other PSU banks rose by up to 6%. The top three constituents—HDFC Bank, ICICI Bank, and SBI—are set to see a gradual weight reduction across four tranches starting December 2025. HDFC Bank and ICICI Bank may face outflows worth $296.1 million and $199.5 million, respectively.