Bank Nifty index, which constitutes 12 leading stocks from the banking sector, finally surpassed its previous record high levels after a period of little more than one year, on January 13.
The bank index touched a fresh intraday record high of 32,683.50, crossing the previous record high of 32,613.10 seen on December 30, 2019. Before this sharp recovery, it had corrected more than 50 percent (from previous record high) to 16,116.25 in March 2020, the lowest level since April 25, 2016.
From that low point, the index has more than doubled now. It ended at a record closing high of 32,574.65 on January 13, up 0.73 percent.
The rally was largely led by private banks due to better asset quality performance than PSU banks. Also, the hope of easing NPA concerns, ample liquidity due to stimulus measures worth trillions of dollars by global central banks, enough fundraising by private banks in advance due to likely NPAs following moratorium given by the RBI during the lockdown, and the expected economic recovery could be few reasons for a rally in the banking space, experts feel.
According to them, the rally is expected to continue further in the coming weeks. Hence they advised holding banking space.
"While the Bank Nifty is at an all-time high the rally has been so far led by the larger private sector banks as they are in a better position to manage asset quality issues as compared to smaller banks and PSU banks. Despite the rally in the banking sector, we feel that there is further scope for a rally given the fact that the economic recovery has been quicker-than-expected, as a result of which asset quality will be better than what was expected earlier," Jyoti Roy - DVP- Equity Strategist at Angel Broking told Moneycontrol.
He feels while provisionings are expected to remain high over the next couple of quarters which will adversely impact profitability. Roy expects strong profitability growth for the sector in FY22 driven by a pick-up in loan growth and a decrease in credit costs.
Hence, he recommended investors to remain invested in the banking space and look at increasing their exposure in case there is any correction post the Q3 numbers.
Karnataka Bank reported a 9.9 percent YoY growth in Q3FY21 profit while the asset quality improved with the gross NPA falling to 3.16 percent (from 3.97 percent QoQ) and net NPA to 1.74 percent (from 2.21 percent QoQ).
HDFC Bank reported a 16 percent YoY growth in advances and a 19 percent rise in deposits for the quarter ended December 31, 2020.
Technically also, the momentum is likely to continue with the index hitting the-33,000 mark soon.
"After showing an upside bounce of previous few sessions minor decline on Tuesday, the Bank Nifty has recovered smartly on Wednesday from an intraday weakness and closed higher. The new all-time high was registered at 32,683 on Wednesday. Hence, one may expect further up move in the banking sector in the coming sessions. The upside levels to be watched at 33,000 in the next few sessions," Nagaraj Shetti, Technical Research Analyst at HDFC Securities said.Disclaimer: The views and investment tips expressed by the investment experts on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.