Popular Bank Nifty index might need a recast if Sebi plan takes off

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Subscribe to enjoy similar stories. One of India’s most popular sectoral stock market indices—Bank Nifty—may require a reconstruction, as the regulator moves to reduce the possible risks of price manipulation and excessive volatility. The Securities and Exchange Board of India (Sebi) believes that the concentration of weights among the top few index constituents gives rise to “fears or risks of market manipulation and /or excessive market volatility" among market participants.

The regulator proposed a set of measures in a consultation paper on Monday, seeking public comments through 17 March. In terms of popularity on the derivatives segment, the Bank Nifty from NSE and Bankex from BSE, to a lesser extent, are next only to benchmarks like the Nifty and Sensex. NSE is the market leader in cash and equity derivatives trading, with BSE trailing at a distant second.

Any sectoral or thematic index other than benchmarks like Nifty and Sensex on which derivatives are sought to be introduced should comprise a minimum of 14 stocks, the Sebi paper proposed. The top constituent must have a weight of not more than 20%, and the combined weight of top three stocks in the index should not exceed 45%. All other constituents’ individual weights should be lower than those of the higher weighted constituents.

Also read | Stock Squid Game: Who's at risk, who gets hurt, and how to save your skin The proposal, if implemented, will need a recast of the Bank Nifty. At the end of January, the Bank Nifty had 12 constituents, with the top two having over 20% weight each, and the top three well in excess of the proposed 45%. HDFC Bank, the top stock, has a weight of 27.63%, ICICI Bank 25.05%, and Kotak Mahindra Bank 9.61%, totalling 62.29%.