NSE Weight Concentration Guidelines: Here's how the Nifty Bank will be impacted

The National Stock Exchange on Monday, December 1, released final guidelines to align with market regulator Securities and Exchange Board of India (SEBI) weight concentration requirements.

SEBI had asked the NSE to reduce the concentration of weights in indices which have futures contracts, which includes the Nifty Bank as well.

As per the final guidelines, the weightage of the top three constituents will be capped at 19%, 14% and 10% respectively.

For the Nifty Bank, the weight adjustment will be implemented in four tranches, starting the end of this month, which would mean that HDFC Bank and ICICI Bank, which are the top two weighted stock on the Nifty Bank, will see a gradual weight reduction.

Constituents of the Nifty Bank will also increase from 12 currently, to 14, which would mean that Yes Bank and Union Bank of India could make their way into the index, according to analysts.

The changes are likely to take effect from the close of December 30.

Both HDFC Bank and ICICI Bank are likely to see weightage reduction amounting to $330 million each, spread over four tranches, according to analysts.

According to Nuvama Alternative & Quantitative Research, HDFC Bank, which currently has a weightage of 27.5% on the Nifty Bank, will see its weightage drop to 18.9% in four tranches. Similarly, ICICI Bank's current weightage of 23.1% will drop to 14% in four tranches.

On the contrary, India's largest lender,

State Bank of India

, which has a 9.4% weightage on the index, will see that number increase to 10%.

Shares of HDFC Bank are trading 1.5% lower at ₹987.5, while those of ICICI Bank are trading 1.3% lower at ₹1,371.5. On the flip side, shares of Union Bank of India are trading with gains of 3%, while those of Yes Bank are trading 1.8% higher at ₹22.86.