SEBI caps bank Nifty weights and tightens index rules.
The SEBI Caps Bank Nifty Weights, Tightens Index Rules. The Nifty Bank index is the main target of a circular released by the Securities and Exchange Board of India (SEBI), the market regulator, regarding the application of qualifying requirements.
The circular provides a break from the May 29 regulation and announces a staggered implementation of the derivative eligibility rules.
SEBI has imposed a limit on the weight of leading stocks in non-benchmark indices such as Bank Nifty, restricting an individual stock’s weight to 20% and the cumulative weight of the top three stocks to 45%. The initiative seeks to mitigate concentration risk and improve market participation.
The Securities and Exchange Board of India (SEBI) has set a limit on how much the top stocks can weigh in non-benchmark indices like Bank Nifty to reduce risk from having too few stocks and to encourage more participation in the market.
What the SEBI circular says: SEBI Caps Bank Nifty
According to the SEBI circular, the total weight of an index’s top three constituents cannot surpass 45%, down from the present 62%, while the weight of the index’s top constituents will be regulated at 20% from 33%.
This implies that the weights of the top three Nifty Bank constituents—HDFC Bank, ICICI Bank, and State Bank of India (SBI)—will gradually be reduced.
Additionally, the guidelines stipulate that all non-benchmark indexes, including the Nifty Bank, on which derivatives are traded, must contain at least 14 stocks. There are presently 12 constituents of the Nifty Bank.
Current Weightage of Percentage in Banak Nifty: SEBI Caps Bank Nifty
On the Nifty Bank, HDFC Bank held a 28.49% weighting as of September 30, followed by ICICI Bank (24.38%) and SBI (a distant third at 9.17%). Axis Bank (8.78%) and Kotak Mahindra Bank (8.97%) round out the top five on the Nifty Bank.
| Index Component | Old Norm (Bank Nifty approx.) | New SEBI Rule | Impact/Goal |
| Max Weight of Top Stock | Approx. 33% | Capped at 20% | Reduces concentration risk in the index. |
| Max Combined Weight (Top 3) | Approx. 62% | Capped at 45% | Ensures more balanced representation across the sector. |
| Minimum Constituents | 12 stocks | Minimum 14 stocks | Expands index representation and diversity. |
| Implementation | N/A | Phased (4 tranches) | Gradual adjustment for Bank Nifty until March 31, 2026. |
Additionally, this implies that Yes Bank, Indian Bank, Union Bank of India, and Bank of India may be the four new contenders to join the Nifty Bank benchmark. The adjustment will commence in December 2025 and continue in four installments until March 31, 2026.
The inclusion of Yes Bank and Indian Bank in the Nifty Bank may lead to inflows of $104.7 million and $72.3 million, respectively, according to Nuvama Alternative & Quantitative Research.
What Nuvama Says about New Changes: SEBI Caps Bank Nifty
Nuvama Alternative anticipates inflows of $107.7 million for Yes Bank, $74.3 million for Indian Bank, $67.7 million for Union Bank, and $41.5 million for Bank of India if all four of the aforementioned lenders are included.
While shares of Bank of India, Indian Bank, and Yes Bank are trading with gains ranging from 1.5% to 2.5%, shares of Union Bank of India are trading with gains of 4.4%.
Sebi raises the number of Bank Nifty stocks from 12 to 14 and imposes a weight limit on the leading stock.
The Securities and Exchange Board of India (Sebi) has announced new prudential regulations for derivatives on the Nifty Bank Index (Bank Nifty), requiring a more diverse and equitable composition.
According to the new regulations, the index is required to comprise a minimum of 14 constituents, an increase from the current 12, while the weight of the leading ingredient will be limited to 20 percent, reduced from the current 33 percent.
The aggregate weight of the top three parts must not surpass 45 percent, in contrast to the current 62 percent.
The modifications, intended to mitigate concentration risk and enhance diversification, would chiefly affect the three major entities: HDFC Bank, ICICI Bank, and State Bank of India, whose allocations will be systematically diminished in four phases until March 31, 2026.
The current constituents of Bank Nifty comprise IDFC First Bank, Canara Bank, Punjab National Bank, Federal Bank, Bank of Baroda, State Bank of India, AU Small Finance Bank, Axis Bank, IndusInd Bank, HDFC Bank, ICICI Bank, and Kotak Mahindra Bank.
Conclusion:
The new regulations pertain to non-benchmark indices with derivatives, such as Bank Nifty, Bankex, and FinNifty. The objective is to improve market resilience and transparency and diminish excessive dependence on a limited number of stocks.
Shall I ascertain which stocks are anticipated to be incorporated into the Bank Nifty index as a result of these modifications?