Bank Nifty recovers 400 pts from day's low, led by Axis, Kotak Mahindra Bank; here are the key triggers

Bank Nifty shares see renewed buying interest in October 3 trade.  

Bank Nifty index recovered sharply on Friday, climbing 400 points from the day’s low to trade above the 55,550 level, led by gains in private lenders Axis Bank, Kotak Mahindra Bank among others.

The rebound came after initial profit-booking in the early trade after a massive move post-RBI monetary policy on October 1. Analysts said the Reserve Bank of India’s recent policy initiatives to boost credit growth supported sentiment in the banking space.

"The central bank's initiatives to accelerate credit flow into the economy will be positive for banks. Stronger banks will benefit not only from higher credit growth but also from lower premium for deposit insurance," said Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. He added that large-cap banks remain attractive from a medium- to long-term perspective.

Kotak Mahindra Bank and Axis Bank were among the top gainers in the Nifty50, rising up to 2.5 percent in intraday trade, amid positive outlook from Morgan Stanley.

Morgan Stanley reiterated "overweight" rating on Axis Bank and hiked price target to Rs 1,450 from Rs 1,325, implying an upside of 25%.

"We expect trends in net interest margins, growth and credit costs to turn positive over the next 12 months," said analysts led by Sumeet Kariwala of Morgan Stanley.

Morgan Stanley projected near-term gains for Kotak Mahindra Bank from macro recovery.

The global brokerage reiterates its positive view on the private lender on strong setup and exposure to segments that benefit from macroeconomic recovery such as commercial banking, vehicle finance and unsecured loans

"After two years of headwinds, the bank is now on the front foot with rising disbursements and stable margins," said Morgan Stanley.

It maintained "overweight" rating on the stock at price target of Rs 2,600, implying a 30% upside.

Amruta Shinde, Technical & Derivative Analyst at Choice Equity Broking Private Limited, noted, "The key support is seen at 55,200, with a breakdown below this level likely to drag the index toward 55,000 and 54,800. On the upside, resistance is placed at 55,400–55,500, and a breakout above this zone could extend the rally toward 55,800."

Brokerages also stayed positive on large-cap private banks following the RBI’s latest measures. The central bank has proposed removal of restrictions on overlap of group businesses, a move seen as providing operational flexibility and regulatory clarity to banking groups.

"This should support more efficient capital deployment, sharper customer segmentation and competitive product structuring, thereby enhancing the overall franchise value of these groups," brokerage Motilal Oswal said in a note.

Jefferies said the move could be beneficial for HDFC Bank (and HDB Financial Services) as well as Kotak Bank and Axis Bank, which have NBFC subsidiaries. Nuvama Institutional Equities added that Kotak Mahindra Bank, HDFC Bank-HDB Financial, Canfin Homes, PNB Housing and Bajaj Finance could see some relief.

RBI eases rules, brokerages bet on private banks with stronger capital base

The PSU Bank index also gained nearly 1 percent. Canara Bank shares advanced after its subsidiary, Canara HSBC Life Insurance Company Ltd, received markets regulator Sebi’s nod for its Updated Draft Red Herring Prospectus (UDRHP) for the proposed initial public offering.

Among other movers, AU Small Finance Bank rose more than 2 percent, while Punjab National Bank and Canara Bank gained up to 1.5 percent in the Bank Nifty index.

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