Banking stocks become the Dhoni in the market, contributing to the recent recovery

Nifty is now 55 percent up from the March 24th low of 7,511. On the same day, Nifty Bank had touched the low of 16,116.25. The index is now 52 percent up.

August 31, 2020 / 02:12 PM IST

Nobody would have imagined in March this year, when the equity market was nosediving battered by COVID-19, that the equity benchmarks will witness a sharp rally soon.

Here is a plain fact for you: Nifty is now 55 percent up from the March 24th low of 7,511. On the same day, Nifty Bank had touched the low of 16,116.25. The index is now 52 percent up.

A whopping 55 percent recovery in just 5 months!

A careful perusal of the trend reveals that the market worked as a team to come out of the gloom. Select heavyweights, such as Reliance Industries, offered a good start to the market in April which was sustained by pharma players and now banking heavyweights are contributing their share which may, probably, get the market hit even all-time high soon.

Gautam Shah, CMT, CFTe, MSTA and founder of Goldilocks Premium Research, compared the market to the Indian cricket team.

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In a tweet on August 25, Shah wrote: "If Nifty was a cricket team and the sectors its players, RIL and IT opened the innings in power play (April), pharma at No.3 gave the stability making it easy for metals and auto to perform at 4 and 5. Now banking comes in at No.6 (Dhoni style) helping the team achieve its goal.

Gautam Shah Quote

He later added when Dhoni bats, you just look in awe, clearly indicating how banking stocks have been dazzling the street of late.

Market analysts are of the view that the next leg of the rally will be driven by banking stocks.

"While the market has almost chartered a V-shaped recovery from March lows, the next leg is likely to be driven by banking wherein most of the negatives look priced in," said Pankaj Pandey, Head – Research, ICICI Direct.

Ajit Mishra, VP - Research, Religare Broking said that the banking index has regained strength after months of underperformance and he does not see this fading anytime soon.

"It may take a pause after the sharp rise but the bias would remain on the positive side and that in turn would help the benchmark index to hold at the higher levels and even inch higher," Mishra said.

The Nifty Bank rallied for the sixth session in a row on August 28, supported by gains in IndusInd Bank, SBI, Federal Bank, ICICI Bank and SBI.

The Bank Nifty outperformed the benchmark indices in the August series and rallied by over 9 percent.

“We witnessed a blend of short-covering and fresh buying in the banking index during the August series. The index witnessed a rollover of 77.91 percent, which is slightly lower than its three-month average of 79.01 percent,” Jay Purohit, Technical and Derivatives Analyst, Motilal Oswal, told Moneycontrol.

Open interest decreased marginally by 2.68 percent on a series-on-series basis. “Currently, the Bank Nifty is light on positions with marginal longs,” he said.

Purohit said 22,400 is immediate support for the index and below it, a strong base is at 21,000.

With banking space coming into the spotlight, 12,000 on Nifty is very much a possibility, Umesh Mehta, Head of Research, Samco Group.

Nifty hit an all-time high of 12,430.50 in January this year. The benchmark index is still about 800 points away from this level.

There are headwinds in the form of falling macroeconomic health and continuous rise of COVID-19 cases.

However, government stimulus, better-than-expected quarterly earnings, and the arrival of an effective vaccine for COVID-19 can trigger a fresh wave of buying in the market.

Will record high level still be far then?

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Nishant Kumar
first published: Aug 31, 2020 02:12 pm

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