Nifty Bank Expands to 14 Constituents with Yes Bank and Union Bank Addition
NSE has expanded Bank Nifty from 12 to 14 constituents by adding Yes Bank and Union Bank effective December 31, following SEBI's mandate for non-benchmark indices. The new entrants are projected to attract combined inflows of $67 million, while existing banks like ICICI Bank and HDFC Bank face significant outflows of $87 million and $86 million respectively. NSE has also imposed a 43% cap on top three constituents' combined weight, down from 60%, to be implemented over four months.
*this image is generated using AI for illustrative purposes only.
The National Stock Exchange has officially welcomed Yes Bank and Union Bank into the Bank Nifty index effective December 31, marking a significant structural change mandated by market regulator SEBI. This expansion transforms the index from its current 12 constituents to accommodate 14 lenders, representing a substantial shift in the banking sector's benchmark composition.
Expected Fund Flows from New Additions
According to Nuvama Institutional Equities projections, the inclusion of these two lenders is expected to generate substantial investment inflows:
| Bank | Expected Inflows |
|---|---|
| Yes Bank | $35 million |
| Union Bank | $32 million |
| Combined Total | $67 million |
Beyond the new entrants, several existing constituents are positioned to benefit from weight increases. Federal Bank, IDFC First Bank, Punjab National Bank, IndusInd Bank, and AU Small Finance Bank are projected to see estimated inflows ranging from $11 million to $16 million each.
Major Outflows Expected from Top Banks
The restructuring will not benefit all constituents equally, with significant outflows projected for the index's largest components:
| Bank | Expected Outflows |
|---|---|
| ICICI Bank | $87 million |
| HDFC Bank | $86 million |
These substantial withdrawals reflect the rebalancing requirements imposed by the new regulatory framework.
Regulatory Framework and Weight Caps
The additions stem from SEBI's directive requiring exchanges to maintain at least 14 stocks in non-benchmark indices such as BSE's Bankex and NSE's Bank Nifty and Finnifty that are eligible for derivatives trading. The regulator has also established limits on individual stock weights and the top three constituents to reduce the influence of any single stock or group of stocks on the indices.
NSE has implemented a 43% cap on the combined weight of the top three Bank Nifty constituents—HDFC Bank, ICICI Bank, and State Bank of India—down from the current 60%. This adjustment will be executed through four equal monthly phases between December and March, triggering portfolio rebalancing and likely outflows from passive funds, including index funds and ETFs tracking the Bank Nifty.
Impact on Nifty 50 Index
The broader Nifty index is also experiencing rebalancing effects. Bharti Airtel emerges as a key beneficiary with projected inflows of approximately $59 million, while Eternal is expected to attract nearly $29 million in inflows.
| Stock | Expected Flow | Amount |
|---|---|---|
| Bharti Airtel | Inflows | $59 million |
| Eternal | Inflows | $29 million |
| IndiGo, M&M, HDFC Bank | Inflows | $8-18 million each |
| Infosys | Outflows | $78 million |
| Adani Ports | Outflows | $32 million |
Other stocks including IndiGo, Mahindra & Mahindra, and HDFC Bank are estimated to attract inflows in the $8–18 million range. Conversely, Infosys faces the largest projected outflows of approximately $78 million, while Adani Ports could see outflows of around $32 million. Reliance Industries, HCL Technologies, and Bajaj Finance are expected to experience modest reductions in their index weights.
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