IGI Logo

Below the Comment on SEBI circular for introduction of derivatives on non-benchmark indices such as Bankex, FinNifty and BankNifty by Ajay Garg, CEO, SMC Global Securities

As part of SEBI’s updated prudential framework, stock exchanges will now need to follow stricter diversification norms before introducing derivatives on non-benchmark indices. The new rules mandate a minimum of 14 constituents, with the top stock’s weight capped at 20%, and the combined weight of the top three stocks limited to 45%.

Currently, indices like Nifty Bank follow more relaxed limits, where no single stock can exceed 33% and the top three together cannot cross 62%. As of October 31, HDFC Bank holds around 28%, making it a dominant player in the index. Under the new norms, this concentration will be reduced gradually over four monthly phases till March 2026, ensuring a smoother transition for stock exchanges and minimizing volatility shocks. Under the current rule allowing a maximum of 12 stocks, Bank Nifty will now be required to expand to at least 14 constituents, promoting greater diversification and stronger risk management. For BSE’s Bankex and NSE’s FinNifty, all adjustments will be implemented in a single phase by December 31, 2025.

These changes are expected to make indices more diversified and less vulnerable to single-stock volatility. For investors, this shift means better risk distribution, improved market representation, and a healthier foundation for both derivative trading and passive fund investments. These changes are aimed at making indices more transparent and harder to manipulate by reducing the dominance of a few heavyweight stocks. The gradual approach will help protect liquidity and ensure a smoother transition for all market participants.

However, for stockbrokers and asset management companies (AMCs), the shift could be significant. Since Bank Nifty forms a crucial part of many passive funds and ETFs, fund managers will need to closely assess which stocks are likely to be added under the new eligibility norms and how these changes could impact the overall risk-return profile. At the same time, brokers may observe increased portfolio rebalancing by investors as the index composition undergoes adjustments.

Above views are of the author and not of the website kindly read disclaimer