HDFC Bank and ICICI Bank closed in the red on December 2, while the Nifty Bank Index closing over 400 points down. HDFC Bank closed near Rs 991, down around 1.1%, while ICICI Bank slipped a little over 1%. The weakness was most pronounced in these two names because they stand to be the most affected by the upcoming index changes.
The selling pressure is seen as an impact of investors repositioning ahead of a major structural overhaul that will reduce the dominance of the index’s largest private-sector lenders.
Nifty Bank Index changes: Index caps, new rules hit the heavyweights
According to a report by Nuvama Alternative and Quantitative Research, the Nifty Bank index will move to a fixed 14 constituents, selected based on a 6-month average free-float market capitalisation, with the requirement that stocks be eligible for trading in the F&O segment.
The most significant shift is the introduction of fixed weight caps:
- 19% for the largest stock
- 14% for the second
- 10% for the third
Combined, the top three cannot exceed 43% of the index. This is materially lower than HDFC Bank’s and ICICI Bank’s current weights. The methodology also requires all other stocks to follow a strict descending order, preventing smaller banks from receiving disproportionate weights.
Nuvama’s analysis shows clear impacts on the two heavyweights. By the end of the transition window, the firm expects:
- HDFC Bank’s weight to fall from 27.5% to 18.9%
- ICICI Bank’s weight to fall from 23.1% to 14.0%
These reductions translate into estimated passive outflows of USD 322 million for HDFC Bank and USD 348 million for ICICI Bank across the full transition.
Funds start positioning ahead of December rollout
The index overhaul will be implemented in four monthly tranches. The first tranche is scheduled for December 2025, with the adjustment taking place on December 30 and becoming effective on December 31. The second tranche will follow in January 2026, the third in February 2026 and the final tranche in March 2026.
Because the top two banks face the largest weight cuts, they aprivatere the earliest targets for repositioning. Even though the first tranche is still weeks away, traders are adjusting exposures gradually to avoid concentrated execution around the December window.
Alongside the weight reductions, the revised index will bring Yes Bank and Union Bank of India into the benchmark in a single step, starting with the first tranche. Nuvama projects their weights to rise to 3.9% and 2.6% respectively by the end of March 2026. Several PSU and mid-tier banks, including Bank of Baroda, PNB, Canara Bank, AUBank, IDFC First Bank, and Federal Bank, are also expected to see meaningful weight increases as the top three lose share.