Bank Nifty set to outperform Nifty 50- Recent fall attracts ‘buy on dips’ investors, valuation gets favourable

Bank Nifty set to outperform Nifty 50? Recent fall attracts ‘buy on dips’ investors, valuation gets favourable

Bank Nifty, Nifty50: Bank Nifty has fallen 9% year-to-date as compared to a 6.2% fall in the benchmark Nifty 50 index. The banking index is also down 11.5% from its 52-week high and has attracted investors’ attention who are looking to buy on dips. Bank Nifty saw significant outperformance in 2022, supported by solid fundamentals. While the start of 2023 hasn’t been good due to profit booking, analysts say the recent correction in Bank Nifty has set up the banking index favourably for investors looking to buy at discounted levels.Bank Nifty ready at pole position to beat Nifty 50 when race starts

“Bank Nifty has been outperforming the Nifty since early 2022 and now with the current cool-off for the last two-and-a-half months, we feel that the next leg of the rally in banks is around the corner. Ratio charts of Bank Nifty to Nifty have formed a Bullish Cup & Handle formation on its long-term charts which means Bank Nifty is likely to retain leadership once markets rebound from lower levels. From short term perspective buy Nifty at 17000-17100, stop loss at 16850 with target of 17500 and buy Bank Nifty at 39000-39500, stop loss at 38500 and target at 41200,” said Rahul Sharma – Director, Head – Technical & Derivative Research, JM Financial Services Ltd.

Bank Nifty valuation concerns subside, numbers become favourable

“In terms of numbers, the Bank Nifty index is now trading at 2.6x, just above its 10-Y average of 2.1x so there is no valuation concern either,” said Raj Vyas of Teji Mandi. “Valuations are still below their peaks and fundamentals are still quite solid. The banking industry is in the best condition it has been in many years; therefore, the outperformance is expected to continue,” said Parth Nyati, Founder, Tradingo. “Bank Nifty has the potential to outperform Nifty in the next one year, provided, we do not see any major selloff in global markets and the current investor fears of a global slowdown recede,” said Aamar Deo Singh, Head Advisory, Angel One.

What should investors do? Is it the right time to buy into Bank Nifty?Bank Nifty may outperform Nifty in next one year; Buy on dips around 38000

“For Bank Nifty to witness any major up move, it must sustain above the 40000/41800 levels, whereas on the downside, crucial support is seen around the 38000/37300 zone. Buying on dips is recommended around 38000 levels, and once we see Bank Nifty trading consistently above the 42000 mark, it has the potential to surpass its all-time high of 44152,” said Aamar Deo Singh of Angel One Ltd.

Bank Nifty may give 10% return from 38000–38200 support levels

“Last year, the banking sector (Bank Nifty) saw significant gains totalling about 10,000 points. Although it is currently going through a correction phase, the worry is less about the correction than the Nifty index. The next level of support for Bank Nifty will be in the 38200–38000 area (an almost 50% correction from the prior rally). Bank Nifty may resume its upward trend and experience a return of more than 10% from the support of the 38000–38200 range,” said Rameshver Dongre, Research Analyst – Equity Research.

Bank Nifty may hit all-time high of 44150 in medium-term, but watch these critical hurdles

“From a Medium-Term Perspective, we expect the Bank Nifty to touch the all-time high of 44150 and beyond that, it can stretch higher till 45000. Crucial support on the downside is placed at 37300,” said Jatin Gedia, Technical Research Analyst at Sharekhan by BNP Paribas. “At any recovery, 18000 and 43000 will act as critical hurdles for Nifty and Bank nifty, respectively; above these levels, we can expect fresh bullish momentum,” said Parth Nyati of Tradingo.

Risk: Strong upside in banking stocks may be capped

“We feel that Nifty has the potential to outperform Bank Nifty, especially with so much underperformance in the IT sector and frontline stocks such as Reliance Industries. Moreover, a strong upside in banking sector stocks looks capped, considering the fact that we are nearing the peak in NIMs along with some moderation in credit offtake and difficulty in tapping a low-rate deposit base. At the current juncture, markets look ripe for a bounce in the short term,” said Manish Chowdhury, head of research at Stoxbox.

Bank Nifty’s fall indicates broad-based weakness rather than outperformance

“The recent turmoil being bank-centric, there is a case being made out of the prospects of Bank Nifty outperforming Nifty especially as Bank Nifty’s fortunes depend on just 4 or 5 five stocks, and also as Indian banks are seen much better placed in terms of quality of assets, and interest rate risks. However, this argument faces challenges from the fact that Bank Nifty has fallen more (12.48%) than Nifty (10.7%) from their respective peaks, but not big enough. This is more of a sign towards broad-based weakness rather than a leading indicator towards outperformance in the months ahead,” said Anand James, Chief Market Strategist at Geojit Financial Services.

Why are banking stocks falling?

“The reason behind the fall is that the margin expansion – which we saw up until now – may not be sustainable, muted deposit growth which is a big concern, and NII growth slowing down. Adding to the concern is the fallout of the Silicon Valley Bank (SVB) shutdown followed by turmoil at Signature Bank, keeping investors worried about the strength of the US banking system along with the already rising inflation. This has further dragged the Bank Nifty by 4-5% this week compared to the Nifty 50 which is down only 2.5%,” said Raj Vyas of Teji Mandi.