Yes Bank, Union Enter Bank Nifty: Is This the Start of a Rally?

A considerable transformation is underway for the Nifty Bank index. The NSE (National Stock Exchange) has announced the inclusion of Yes Bank and the Union bank of India into its premier banking gauge, effective Dec 31, 2025.

This reshuffle is a structural change mandated by the securities market’s regulator, SEBI. The structural change is expected to reduce concentration risk in index derivatives. From the current 12 constituents, the index will expand to a fixed set of 14 stocks.

This decision has set the stage for a huge liquidity event. As per Nuvama Institutional Equities, the inclusion might trigger combined inflows of ~$250 mn into the two new entrants (i.e., Yes Bank and the Union Bank of India). Yes Bank alone is projected to attract $140 mn. This translates to a buying of roughly 55.2 cr shares, which is more than 6X its average daily trading volume. Similarly, Union Bank is expected to see inflows of ~$109 mn.

Thus, a large volume of passive buying is hitting the market. Now, there is an important question for the traders. Will this liquidity injection drive a sustained re-rating for these two lenders, or is the "inclusion premium" already priced in?

Why Is the Index Being Reshuffled Now?

The regulatory push is driving the reshuffle. The main aim is to diversify the index.

For years, a few heavyweights have dominated the Nifty Bank index. This dominance has made it vulnerable to sharp swings based on the performance of just two or three stocks.

As per the new SEBI guidelines, indices with futures contracts need to have a more balanced weight distribution. So, under the revised framework, the weightage of the top three constituents is now going to be strictly capped.

• The top stock cannot exceed 19%
• The second has a 14% cap
• The third has a 10% cap

Meaning, the combined weight of the top three giants which currently are HDFC Bank, ICICI Bank, and SBI, cannot exceed 43%.

The capping mechanism is established to force a redistribution of weight to smaller constituents. But while new entrants celebrate, what happens to the giants who are losing their dominance?

HDFC and ICICI Bank: The Big Losers?

The rebalancing math is a zero-sum game. The inflows into Yes Bank and Union Bank need to come from somewhere, and that "somewhere" is the heavyweights.

HDFC Bank and ICICI Bank will see their influence wane. At the same time, mid-sized lenders like Federal Bank, IDFC First Bank, and the new entrants can see their importance rise. Both heavyweights might likely face heavy selling pressure from passive funds that track the index.

Analysts have estimated HDFC Bank’s outflows to the tune of $322 mn and ICICI Bank’s outflows worth $348 mn. This selling is purely a result of the mechanical adjustment of index weights.

However, this transition would not happen overnight. The NSE will implement these changes in four monthly tranches, starting from Dec 2025 and concluding in Mar 2026.

The staggered approach will spread the selling pressure over four months, as the market absorbs the supply. So, with the heavyweights facing a persistent supply of stock, will this cap the upside for the entire Bank Nifty index in the near term?

What Does This Mean for Your Portfolio?

For investors, this reshuffle can bring both tactical and structural opportunities. Ultimately, this rebalancing might level the playing field.

It can force passive money to look beyond the top two names and allocate capital to the next tier of banks.

Also, for traders, the next four months will be about navigating the "flow dynamics." As the index evolves, it may be possible that the "mid-cap" banks become the new drivers of the Bank Nifty's momentum.

Source

Economic Times
Business Today
CNBC TV18
Moneycontrol