Bank Nifty hits all-time high; key index constituents may take markets higher

The Nifty Bank index, which had been stuck in a narrow trading range for the past 10 weeks, has finally seen a price breakout to hit an all-time high, suggesting that the benchmark is set to climb. Heavyweights HDFC Bank, Kotak Bank, ICICI Bank, and Axis Bank may be at the vanguard of the northward journey for the key gauge.

The index, which gained 2.9 per cent so far this year through Monday, climbed 1.7 per cent to close at 27,966.65. As credit demand and asset quality improve, banks are expected to lead the rally for the broader markets.

“Improving credit growth because of the Insolvency and Bankruptcy Code framework, pick-up in public and private capex and the government’s mega recapitalisation of PSU banks have acted as game changers for the banking sector,” said Saurabh Rathi, analyst, IIFL. “Further, private banks, supported by strong balance sheet and significant presence in the retail segment, are likely to support credit growth.”

According to Dharmesh Shah of ICICI Securities, Bank Nifty has broken out of six months consolidation (28,388-24,240) and settled at an all-time high at 28,425, signaling structural improvements that could maintain the gauge’s upward momentum toward 29,250.

There has been buying across stocks and almost all the private sector banks are in an uptrend, helping the index outperform the Nifty. IndusInd Bank gained 3.7 per cent to Rs 1,571 on Tuesday while ICICI Bank rose 3.3 per cent to Rs 388.20. HDFC Bank surged 1.9 per cent to Rs 2,171. Public-sector banks have also participated in the rally.

“Among the private sector banks, the fresh breakout is seen in stocks like HDFC BANK, which is likely to … go above 2220,” said Jay Thakkar, AVP- technical & derivatives research, Anand Rathi. “Among the other private sector banks, Axis Bank and ICICI Bank that have been underperformers in the last rally are now expected to take the lead as both are trading at life-time highs.”

Since FY18 onward, credit growth at Indian banks is finally reviving from the lows of 2017. Banks are currently witnessing loan demand from higher capital expenditure and working capital. Further, yields in the bond markets have risen, making bank credit more attractive.

Going forward, the banking sector appears to be on a strong wicket, both on growth and profitability prospects, said analysts.

“There is big opportunity in the retail banking space, and with the peaking out of NPA pressures, some of the corporate banks are likely to see improved performance,” said Lalitabh Shrivastawa, AVP-research, Sharekhan by BNP Paribas.