Leaner Bank Nifty on Sebi's new menu: A big-bank diet feeds a $1.5 bn churn

Sebi's weight-watching exercise caps HDFC and ICICI at 20%; smaller lenders get a larger slice

The Securities and Exchange Board of India’s (Sebi’s) new framework for non-benchmark indices is expected to trigger around ₹12,900 crore ($1.5 billion) worth of reshuffling in the National Stock Exchange’s (NSE’s) Nifty Bank index.

 

Yes Bank and Union Bank of India will join the index under the revised rules, according to Brian Freitas, an analyst at Periscope Analytics who writes on Smartkarma. Indian Bank narrowly missed out, ranking just below Union Bank of India, he said.

 

Freitas estimates that trading volumes in the new entrants could jump tenfold around the rebalance dates. 

At present, HDFC Bank and ICICI Bank together account for nearly half of the index, with each holding a weight above 23 per cent. The top three constituents make up over 60 per cent.

 

Under Sebi’s new limits, both HDFC Bank and ICICI Bank will be capped at 20 per cent each, while the combined weight of the top three will be restricted to 45 per cent.

 

With the addition of the two new banks, the number of constituents will rise from 12 to 14. The reweighting will take place in four tranches. The trimming of HDFC Bank and ICICI Bank’s weights will free up allocations for other members, with Kotak Mahindra Bank, Axis Bank, and State Bank of India expected to benefit the most. Each could see passive inflows of about ₹1,200 crore.

 

Ahead of the rebalancing, some traders had taken hedged positions — selling HDFC Bank and ICICI Bank while buying Axis Bank and Kotak Mahindra Bank. Those trades have outperformed in recent weeks, Freitas said.

 

Sebi’s new framework, aimed at reducing concentration risk in sectoral and thematic indices traded in derivatives, is designed to limit market manipulation and volatility.

 

Freitas expects NSE Indices to begin implementing the changes with the December rebalance and complete the process by March, though an earlier rollout in November remains possible. Index-tracking funds and institutional investors are now waiting for clarity on the exact timeline and flow adjustments, he said.