The additions are part of the Securities and Exchange Board of India’s (Sebi) move directing exchanges to have at least 14 stocks in non-benchmark indices such as BSE’s Bankex and NSE’s Bank Nifty and Finnifty that are eligible for being traded in the derivatives. The regulator also recommended limits on weights for each stock and the top three constituents. They are aimed at reducing the influence of any stock or a set of stocks on the indices.
AgenciesTwo entrants likely to get total flows of $249m; HDFC and ICICI may see outflows
Accordingly, NSE has capped the total weight of the top three stocks in Bank Nifty – HDFC, ICICI and SBI – at 43%. Currently, these stocks jointly hold 60% weight in the index. The reduction in their joint weights will happen in four monthly tranches starting from December to March, resulting in outflows by passive funds such as index and exchange-traded funds (ETFs) tracking the Bank Nifty as they will need to rebalance their portfolios along with the index.
Nuvama Alternative & Quantitative Research said the rejig could result in total outflows from HDFC and ICICI worth $670 million by March. SBI could see inflows of $31 million. The two entrants -Yes and Union Bank – could see total flows of $249 million, according to Nuvama.
The decision to reduce specific stock influence on Bank Nifty could have stemmed from the recent instance when the US trading giant, Jane Street, was accused of manipulating the Bank Nifty derivatives and their components to swing the index moves in its favour.
Currently, HDFC Bank’s weight in Bank Nifty is 27.5%. By March, it will be cut to 18.9%, said Nuvama. ICICI’s weight will fall to 14% from 23.1%, while SBI’s weight will be raised to the highest level of 10% from 9.4% currently.
