Nifty Bank rejig trims HDFC and ICICI Bank heft; shares fall 1.25%

Outflows of over $300 million each

NSE Indices, the index administration arm of the National Stock Exchange (NSE), has revised its computation methodology, triggering a steep reduction in the weightings of HDFC Bank and ICICI Bank in the widely tracked Nifty Bank index. 

The rejig is expected to lead to cumulative passive outflows of nearly $670 million (₹6,000 crore) from the two banking majors. Shares of both HDFC Bank and ICICI Bank declined 1.25 per cent on Tuesday, together accounting for roughly half the losses in the benchmark Sensex and Nifty, which fell over half a per cent. 

The methodology change follows a Securities and Exchange Board of India (Sebi) circular issued in May for non-benchmark indices. Sebi has capped the weight of the top constituent at 20 per cent and the combined weight of the top three at 45 per cent. The aim is to ensure that indices underlying derivatives contracts are broad-based and not overly concentrated in a few stocks. 

Currently, HDFC Bank holds a 27.5 per cent weight in the Nifty Bank, while ICICI Bank stands at 23.1 per cent — levels that far exceed the new caps. The index, popular among exchange-traded fund (ETF) investors and derivatives traders, will therefore undergo considerable rebalancing. Sebi has also mandated that such indices must comprise at least 14 stocks; the Nifty Bank currently has 12. To meet this requirement, NSE Indices will add Yes Bank and Union Bank of India as new constituents, effective December 31. 

According to estimates by Nuvama Alternative & Quantitative Research, Yes Bank’s weight will rise to 3.9 per cent over four tranches, resulting in inflows of $140 million (₹1,250 crore). Union Bank of India is expected to see inflows of $109 million (₹980 crore) as its weight increases to 2.6 per cent. Shares of both lenders gained over 1 per cent on Tuesday. 

Meanwhile, Nuvama expects outflows of $322 million (₹2,900 crore) from HDFC Bank and around $348 million (₹3,130 crore) from ICICI Bank as their weights are reduced. Axis Bank and Kotak Mahindra Bank will also see marginal outflows, while the remaining eight constituents of the index are likely to receive moderate inflows. Separately, NSE Indices has announced revised caps for the Nifty Financial Services index, where the top three constituents will now be limited to 19 per cent, 14 per cent, and 10 per cent. Currently, the top three stocks account for as much as 62 per cent, with a single stock allowed to weigh up to 33 per cent. Analysts said the impact of the new methodology on the Nifty Financial Services index will be negligible. “This is a constructive step that strengthens the methodology framework and ensures wider representation within the banking and financial services indices,” said Abhilash Pagaria, head of alternative and quantitative research at Nuvama Wealth Management. 

In October, Sebi proposed a “glide path” for such rebalancing exercises, allowing weight adjustments to be implemented in multiple tranches rather than at once. The move was prompted by concerns from exchanges and fund managers that an immediate overhaul could lead to excessive churn in large constituents, heightening volatility and increasing tracking errors for index funds and ETFs. 

 

Benchmarks fall for third straight day 

Benchmarks fell for a third consecutive session on Tuesday as concerns over foreign outflows and the rupee falling to a record low fuelled profit booking. The Nifty fell 0.55 per cent to 26,032.2 and Sensex lost 0.59 per cent to 85,138.27. The indices scaled record highs after 14 months last week, boosted by improving earnings, stable growth, and supportive monetary and fiscal policies. “We expect market to remain range bound due to lack of major triggers in the near term,” said Dharmesh Kant, head of equity research at Cholamandalam Securities.

 

Nomura predicts Nifty at 29,300 by 2026-end 

Nomura expects benchmark Nifty 50 to climb to 29,300 by end of 2026, about 12 per cent above current levels, as cyclical economic momentum and earnings growth regain traction under supportive policies, its analyst Saion Mukherjee said. He added that the brokerage dropped its valuation concerns in May 2025 after markets steadied from the tariff-driven selloff triggered by the US hike in import duties. The brokerage said India’s relative underperformance over the past year has helped valuation premiums normalise, with strong local flows anchoring market stability.