Union Bank of India, other PSU bank shares rise up to 6% as SEBI notifies new rules for Bank Nifty: Here's why

Union Bank of India, other PSU bank shares rise up to 6% as SEBI notifies new rules for Bank Nifty: Here's why

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26 Aug, 2025 12:21

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PSU Bank shares rallied on October 31 after SEBI notified new rules for Bank Nifty, including the requirement that the sectoral index should have minimum 14 constituents as against the current 12.

The weight of the top constituents will now be capped at 20% as against 33% currently. The combined weight of the top three constituents cannot exceed 45% compared to 62% currently, said SEBI in a circular.

The top three constituents (HDFC Bank, ICICI Bank, and SBI) will see a gradual weight reduction across four tranches, reported CNBC-Awaaz on October 31.

The channel added that Yes Bank, Indian Bank, Union Bank and Bank of India could be four new candidates for inclusion.

Consequently, the shares of these lenders rose up to 6% with Union Bank of India leading the gains. Shares of Yes Bank rose over 3% while those of Bank of India rose 2%.

A rub off effect was seen in PSU Bank index, which was trading 2% higher at 12:45 pm on October 31, with Union Bank of India, Canara Bank leading the gains, followed by UCO Bank and Punjab National Bank. The index was the top sectoral gainer on October 31. Separately, the Nifty Private Bank index was trading 0.35% lower on October 31 during afternoon trade.

There are expectations that inflows into PSU banks could rise after the rebalancing of Bank Nifty.

HDFC Bank and ICICI Bank hold 28.49% and 24.38% weight in Bank Nifty and the stocks were trading nearly 1% lower on October 31.

HDFC Bank and ICICI Bank can see outflows worth $296.1 million and $199.5 million in four tranches beginning December, due to reduction in weight, assuming two new stocks are added to Nifty Bank, as per Nuvama Alternative & Quantitative Research.

SBI, Axis Bank and Kotak Bank can also see some outflows, added Nuvama.

Yes Bank and Indian Bank are likely to be included, Nuvama further said.

Union Bank of India and Bank of India can also make it to the index if NSE decides to add four more stocks, said Nuvama.

The adjustment will be done in 4 tranches till March 31, 2026 and first Adjustment will be done in December 2025.

The move aims to ensure that derivatives are based on well-diversified indices and to prevent excessive concentration in a few large stocks.

The circular illustrates that for BANKNIFTY, the weight of the top constituent would be reduced gradually. For example, if the top stock currently holds 28 percent weight, it will be trimmed to 20 percent over four tranches, with recalibration at each stage based on price movements and market dynamics. Excess weights from top constituents will be redistributed among smaller stocks within prudential limits.

Meanwhile, Canara Bank shares hit 15-year high on October 31 by rising 3.5% to hit Rs 138 apiece, the highest since October 2010.

The PSU lender's net profit rose nearly 19% to Rs 4,774 crore and interest earned increased 6.07% to Rs 31,544 crore.

Morgan Stanley said higher NII was helped by interest income on income tax refund.

With inputs from Reuters