HDFC Bank, ICICI Bank stocks may feel Bank Nifty weight rejig pressure

Capping single-stock weight at 20% in non-benchmark indices may trigger ₹3,800 crore selloff in HDFC, ICICI Bank and pave way for Yes Bank, Union Bank entries

The latest measures introduced by the Securities and Exchange Board of India (Sebi) for the futures & options (F&O) segment may adversely impact HDFC Bank and ICICI Bank stocks.

 

Market participants anticipate a churn of nearly $1 billion as passive funds tracking the Bank Nifty and Bankex indices adjust to the new regulations. They expect significant selling pressure, particularly on HDFC Bank and ICICI Bank. 

 

Currently, both banking giants carry a weighting of over 25 per cent each in the 12-member Nifty Bank index, a widely followed benchmark in the derivatives segment. In a move aimed at reducing index concentration and volatility, the markets regulator has now capped the weighting of a single stock in non-benchmark indices at 20 per cent. It has also mandated that such indices must include at least 14 constituents, with the combined weighting of the top three components limited to 45 per cent.

 

Non-benchmark indices are those other than the Nifty 50 and Sensex. At present, the top three Bank Nifty components account for a combined 61.5 per cent of the index. 

 

Experts said Sebi’s move came amid fears that thematic indices run the risk of manipulation due to high concentration of individual stocks. These changes, announced by the markets regulator on Thursday, will be implemented by November 3.

 

Brian Freitas of Periscope Analytics, who publishes research on the Smartkarma platform, expects significant outflows from HDFC Bank and ICICI Bank as a result of the changes. He estimates that HDFC Bank could face selling to the tune of ₹2,140 crore, while ICICI Bank may see ₹1,673 crore in sales, in line with the newly imposed 20 per cent cap on weightings.