SEBI’s New Bank Nifty Rules May Trigger Outflows from HDFC & ICICI Bank

Public sector bank shares jumped on October 31 after the Securities and Exchange Board of India (SEBI) issued revised guidelines for the Bank Nifty index, signaling a shift in its composition and weight distribution.

More Constituents, Lower Weight Limits for Top Banks

Under the new rules, the Bank Nifty index must now include at least 14 constituents, up from 12 currently.

• Single stock weight capped at 20% (earlier 33%)

• Combined weight of top three stocks capped at 45% (earlier 62%)

These changes are designed to create a more balanced and diversified representation of the index across private and public sector banks.

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Top Banks to See Gradual Weight Reduction

As per CNBC-Awaaz, the three largest constituents — HDFC Bank, ICICI Bank, and SBI — will undergo a gradual reduction in their index weights across four tranches.

Brokerage Nuvama Institutional Equities expects HDFC Bank and ICICI Bank to face outflows due to this rebalancing, as their dominance within the index will decline.

PSU Banks May Gain from Index Inclusion

With SEBI expanding the index to 14 members, Yes Bank, Indian Bank, Union Bank, and Bank of India are potential new candidates for inclusion.
This could lead to increased inflows into PSU banks, improving their visibility and liquidity in the market.

Impact on Market and Sector Sentiment

Analysts believe the move will reduce index concentration and broaden sector exposure, though it may bring short-term volatility as institutional investors adjust their portfolios.

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