Nifty December Rejig: Nuvama Says SEBI Rule May Reshape Nifty Bank Index — Details Inside
The new measures prescribed in the SEBI rule are aimed at ensuring a more balanced and diversified index, Nuvama Alternative and Quantitative Research said.
Nuvama Alternative and Quantitative Research expects SEBI’s new circular on derivative eligibility to reshape the Nifty Bank index, with changes likely to start in December. The National Stock Exchange is expected to implement the changes in phases over four months, reducing the dominance of large banks and adding new constituents to meet the new criteria.
SEBI Circular and Its Impact
The Securities and Exchange Board of India in August had issued a circular setting eligibility criteria for derivatives on existing non-benchmark indices. The circular requires every non-benchmark index with derivatives to have at least 14 constituents. The weight of the top constituent is now capped at 20%, down from 33%. The combined weight of the top three constituents cannot exceed 45%, compared with 62% earlier.
These rules are aimed at reducing concentration in sectoral indices such as the Nifty Bank, Nifty Financial Services and the BSE Bankex.
Nuvama’s Expectations
According to Nuvama, the new framework will mainly affect the Nifty Bank index, which currently has 12 stocks. To comply with the new rule, the index will expand to 14 stocks. Nuvama expects Yes Bank and Indian Bank to be included first. If the exchange decides to add more stocks, Union Bank of India and Bank of India could also be part of the index.
The brokerage said the weights of large banks such as HDFC Bank, ICICI Bank and State Bank of India will be gradually reduced until March 31, 2026. The first phase of adjustments is expected in December during the scheduled NSE index review.
Implementation Details
Nuvama said exchanges can include more than 14 stocks, as the number represents a minimum requirement under SEBI’s rule. The weight of all constituents must follow a descending order, it added.
The NSE is expected to issue detailed guidelines for implementing the circular in the coming days. According to Nuvama, SEBI’s revised norms will make the Nifty Bank index more representative of the wider banking sector by including a broader mix of banks.
