Shares of Yes Bank and Union Bank of India rose up to 3% on December 2 following the National Stock Exchange's announcement that both lenders will be included in the Bank Nifty index effective December 31, 2025. The index composition will expand from 12 to 14 stocks.

Weight Capping and Passive Flow Impact

The NSE also finalized new weightage caps for the sectoral index, setting the maximum weights for the top three constituents at 19%, 14%, and 10%, respectively. This revision will trigger significant passive fund rebalancing.

According to IIFL Alternative Research, the weight reduction for ICICI Bank and HDFC Bank is expected to drive outflows of approximately $351 million and $331 million, respectively. These amounts are 1.9x and 1.5x their average daily trading volume (ADV).

Conversely, Union Bank of India and Yes Bank are projected to see inflows of $100 million and $115 million, equating to about 5x and 4.9x their ADV. Other banks likely to see inflows exceeding 2x ADV include Federal Bank and AU Small Finance Bank.

Nuvama Alternative & Quantitative Research provided similar estimates, projecting inflows of $140 million into Yes Bank and $109 million into Union Bank, with outflows of $348 million from ICICI Bank and $322 million from HDFC Bank.

The rebalancing will be implemented in four monthly tranches, concluding in March 2026.

Market Reaction

On December 2, heavyweight financial stocks HDFC Bank, ICICI Bank, and Axis Bank fell between 0.8% and 1.3%. Meanwhile, Indian Bank's stock declined 2.5% to ₹865.65, as it had been widely speculated for inclusion but was ultimately not added to the index.