Bank Nifty Hits Fresh All-Time High, Tops 44,000; What Should Investors Do Now?

Bank Nifty Today: Indian benchmark indices inched higher on Wednesday while banking stock index Bank Nifty hit a record high, lifted by strong global equities after the cooler-than-expected consumer price increase in the US. Since early November, the Nifty Bank Index has scaled record highs and has now surpassed the 44,000-mark, a sentimental trigger for further optimism. The index has outperformed the benchmark index NSE Nifty 50, gaining almost 24 per cent year-to-date.

Santosh Meena, Head of Research, Swastika Investmart Ltd., said: “The leader of the current bull market is Banknifty, and it is continuing its leadership aggressively. The fundamentals are also supporting the move in the banking index, and the outperformance is likely to continue for the next few quarters.”

Global equities were mostly higher after data released on Wednesday showed consumer price index in November rose 0.1 per cent, after advancing 0.4 per cent in October. Economists polled by Reuters had forecast the CPI gaining 0.3 per cent. The slowdown could lead the Fed to scale back the size of rate hikes at its policy meeting that ends today.

Why is Bank Nifty Rallying?

The lending rates for Banks have been constantly increasing over the past few months, in tandem with the rise in the repo rate. However, the increase in deposit rates has been at a slower pace. “As the competitive intensity to garner deposits has started to intensify, we expect deposit rates to increase, thus driving an increase in funding costs. A higher LCR (liquidity coverage ratio) and a healthy CASA mix can lead to a calibrated increase in deposit rates, given the ample liquidity. Banks, with a higher mix of floating-rate book, stand to benefit from the continued monetary tightening as RBI further increased the repo rate by 35bp on 7th Dec’22 and maintained withdrawal of its accommodative stance to keep inflation under check (unchanged),” Motilal Oswal said.

Bank Nifty Outlook

Some analysts however remain cautious that gains in Indian markets could be capped in the short to medium term due to high valuations and the probability of a recession in the US.

“In India, the bank index, and within the bank index the PSU bank segment, is the strongest segment and this can continue to remain resilient. HDFC twins exhibit strength. The recovery in the IT segment has some more steam to go. The resumption of FII buying is another positive. However, Nifty is unlikely to break out of the 18,400-18,800 range and sustain at higher levels. High valuations are likely to cap the rally,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

“We expect this outperformance for banks and the tailwind for the sector to continue for 2023. In the short term, after yesterday’s inflation print in the US, there is an expectation in some quarters that the US Fed might turn less hawkish in the upcoming policy, which will support the markets,” said Nishit Master, Portfolio Manager, Axis Securities PMS.

Next Stop: Bank Nifty to 45,000 Soon?

Santosh Meena believes that “44,200 is an immediate hurdle, and 44,700/45,000 are the next resistance levels. On the downside, 43,500 is an immediate and strong support at any profit booking, and 42,000 will act as a base at any correction”.

“The index has recently given a clear breakout above the 43500 levels from the rectangular box to further strengthen the bias and trend and is moving ahead for our next targets of 45500-4600 levels,” said Vaishali Parekh, Vice President – Technical Research, Prabhudas Lilladher Pvt. Ltd.

Top Sectoral Picks

ICICI Bank, Axis Bank, Federal Bank, and SBI are among the top banking picks of Motilal Oswal.

Prabhudas Lilladher Pvt. Ltd said: “The banking stocks which has shown prominent strength and help the index to carry on with the momentum are HDFC Bank which also has come out of the consolidation phase to indicate a breakout, then Axis Bank which has outperformed is going strong and has further scope for upward movement in the coming days. Indusind Bank also has picked up from the consolidation period which is going strong and finally SBI which has picked up momentum and is at a new zone with a strong bias.”

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