Rate Cut Meets a Falling Rupee: Yes Bank, Union Bank Shares Rise Up to 3% on Bank Nifty Inclusion

Shares of Yes Bank and Union Bank of India gained up to 3% on December 2 after the National Stock Exchange (NSE) announced their inclusion in the Bank Nifty index effective December 31, 2025. The revision marks a major reshuffle as the influential sectoral index expands from 12 to 14 constituents, altering both stock weightage and capital flow expectations across major banks.

NSE Expands Bank Nifty to 14 Stocks

According to the NSE announcement on December 1, the Bank Nifty will now include:

• Yes Bank

• Union Bank of India

These additions will officially join the index on December 31, 2025.

Alongside the expansion, NSE introduced revised weightage caps for top constituents:

• Top stock capped at 19%

• Second at 14%

• Third at 10%

This is a notable change from the earlier proposal that allowed the top stock to carry up to 20% weight, with a combined cap of ≤45% for the top three.

The new limits are expected to structurally rebalance the index toward greater diversification, thereby affecting passive fund flows linked to Bank Nifty.

Market Reaction: Yes Bank, Union Bank Rise Up to 3%

Both Yes Bank and Union Bank saw immediate positive sentiment following the announcement.

• Yes Bank: rose up to 3%

• Union Bank of India: also climbed nearly 3%

The gains were driven by expected inflows from index funds and ETFs that track Bank Nifty, as they prepare to realign portfolios ahead of the December 31 cutoff.

However, not all banking stocks benefited. On the same day:

• HDFC Bank, ICICI Bank, and Axis Bank fell between 0.8% and 1.3%

• Indian Bank dropped 2.5%, trading at ₹865.65, after being widely expected to be included but ultimately omitted

Expected Flows: Inflows for Yes Bank & Union Bank, Outflows for Heavyweights

Brokerage estimates indicate significant fund movement due to the rebalancing.

IIFL (Alt Desk) Estimates

According to CNBC-TV18 reporting:

Outflows

• ICICI Bank: $351 million
  (1.9× average daily volume)

• HDFC Bank: $331 million
  (1.5× ADV)

Inflows

• Union Bank of India: $100 million (≈5× ADV)

• Yes Bank: $115 million (≈4.9× ADV)

Additionally, Federal Bank and AU Small Finance Bank may also receive inflows exceeding 2× ADV.

Nuvama Alternative & Quantitative Research Estimates

Nuvama gives a similar picture:

Inflows

• Yes Bank: $140 million

• Union Bank of India: $109 million

Outflows

• HDFC Bank: $322 million

• ICICI Bank: $348 million

These adjustments will not be executed all at once but instead rolled out in four monthly tranches ending March 2026, giving markets time to absorb shifts smoothly.

Impact on Heavyweight Bank Stocks

The reduction in weightages for ICICI Bank and HDFC Bank triggered mild selling pressure:

• HDFC Bank: down 0.8–1.3%

• ICICI Bank: down 0.8–1.3%

• Axis Bank: also fell in the same range

These declines reflect the anticipated fund outflows and lower future index representation.

Meanwhile, Indian Bank, previously seen as a strong contender for inclusion, experienced a 2.5% drop, signalling investor disappointment.

Also Read: Govt Shuts Door on FDI Limit Hike, Merger Chatter; PSU Bank Rally Now Hinges on Fundamentals

Why the Inclusion Matter?

The Bank Nifty is one of India’s most traded sectoral indices and is widely tracked by:

• Domestic mutual funds

• ETFs

• Global passive funds

• FIIs active in derivative markets

Inclusion generally results in:

• Immediate fund inflows

• Higher liquidity

• Better visibility

• Potential improvement in price stability

Thus, Yes Bank and Union Bank entering the index gives both lenders a structural uplift in market relevance, especially as both stocks carry high trading volumes.

Broader Market Context

The inclusion comes at a time when:

• Banking stocks have shown mixed performance

• Portfolio diversification within indices is gaining regulatory focus

• FPI flows into Indian financials remain volatile

However, the expansion to 14 constituents reflects NSE’s intent to broaden sectoral exposure and reduce concentration risk.

What Happens Next?

From now until March 2026, passive and quantitative funds will recalibrate holdings in phases. This means:

• Gradual rise in daily demand for Yes Bank and Union Bank

• Gradual selling pressure on HDFC Bank and ICICI Bank

• Potential re-rating across mid-tier banks, depending on index-related volumes

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