SEBI’s New Index Rules May Shift Flows Across Big Banks

SEBI’s October 2025 circular has triggered a major overhaul in how indices like Nifty Bank, Bankex, and FinNifty are structured for derivative eligibility. The regulator now mandates:

– Top constituent weight capped at 20 percent, down from 33 percent

– Combined weight of top three capped at 45 percent, versus the current 62 percent

– Minimum 14 stocks per index, with descending weight order for others

This means HDFC Bank, ICICI Bank, and SBI—currently dominating Nifty Bank—will see their weightages trimmed gradually. The move aims to curb over-concentration and align Indian indices with global standards.

Implementation Timeline:

Bankex and FinNifty must comply by December 31, 2025

Nifty Bank gets a phased rollout until March 31, 2026

The circular also provides relief from SEBI’s earlier May 29 directive, offering staggered compliance windows.

Impact on Flows:

YES Bank and Indian Bank, recently added to Nifty Bank, were expected to attract 104.7 million dollars and 72.3 million dollars respectively. But due to their low free-float, their actual weightages may be lower, reducing passive inflows from ETFs and index funds.

This reshuffle could benefit banks with higher free-float like ICICI and HDFC, while adding volatility to stocks facing weight cuts. Passive investors and fund managers will need to rebalance portfolios accordingly.