Mr Market has been on a record-setting spree of late, supported by positive global sentiment as concerns over COVID cases ease and economic indicators improve.
While sectors such as IT, metal and FMCG have participated, the heavyweight Bank Nifty has underperformed.
Nifty has risen 23 percent in the year 2021 so far while the Nifty Bank has clocked a gain of 17 percent.
In the last few sessions, however, the banking index has gained in tandem with the benchmark but investors look cautious whether the gains in the banking index will sustain or not.
The second wave of COVID-19 weighed on the sector. The re-imposition of lockdown across the country raised concerns that there will be a surge in NPAs.
The banking sector is generally considered to be a proxy for the economy and a faltering economy is a huge negative for the banking sector.
"The potential rise in the NPAs is also a concern for the Street. The banks have been proactive in this matter and have been creating provisions in order to meet any eventuality. These factors led to a major correction in the banking sector in the last quarter of FY21 and it could not regain its position even after posting good numbers for Q1FY22," said Vishal Balabhadruni, Banking Analyst at CapitalVia Global Research.
"With the recovery in the economy, the banking sector is also expected to recover owing to increased economic activity and growing asset quality. The growth may be visible in the second half of FY22. There has been a considerable consolidation on the monthly chart and breakout above 37700 is expected to pave way for a fresh rally in the index," said Balabhadruni.
On August 31, Nifty closed above 17,000 markets for the first time. Nifty Bank, too, gained and closed at its multi-week high level of 36,424.60.
Experts are of the view that the banking index may outperform in the coming sessions as Bank Nifty closed above the key resistance level of 36,400 on August 31.
"Bank Nifty found multiple hurdles near 36,250 in the last 18 trading sessions. The current momentum and the breach of key resistance level could have also been led by short-covering," said Chandan Taparia, Associate Vice President - Equity Derivatives & Technicals, Broking & Distribution, Motilal Oswal Financial Services.
"Now a decisive hold of Bank Nifty above 36,250 could result in a fresh rally towards 37,000 and 37,250 while on the downside, key support exists at 36,000," said Taparia.
Taparia pointed out that technically, ICICI Bank, Axis Bank and HDFC Bank look ripe for a fresh breakout while SBI is bottoming out which will support this leg of the rally.
Vikas Jain, Senior Research Analyst at Reliance Securities believes the breach of 36,200 in the current week has raised the possibility of a strong breakout for the Bank Nifty index.
"The resistance area of 36,000-36,100 now would act as strong support and any decline near 36,000 would be a good opportunity to add heavyweight private banking stocks like HDFC Bank, ICICI Bank, Kotak Mahindra Bank, followed by SBI," Jain said.
Jain expects Bank Nifty to scale a new all-time high near 38,000 over the next few weeks.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.