Inverse rotation between Nifty and Bank Nifty: Will it end private banks’ dream run?

Nifty Bank’s strong performance in recent years coincided with the ruthless rise in private banks’ market share. Besides, while state-run lenders saw a surge in non-performing assets during this period, asset quality remained largely stable for private lenders.

Six out of the eight private bank stocks in Nifty Bank have performed better than public sector banks, data showed. Nifty Bank has surged over 100 per cent since February, 2016 and 2,922 per cent since its inception in January, 2000. NSE benchmark Nifty climbed around 70 per cent since February 2016 and 700 per cent since January 2000.

With a 15,040 per cent rally since January 2000, Kotak Mahindra Bank has stood out as top gainer in Nifty Bank index. Other private lenders Axis Bank (up 13,721 per cent), HDFC Bank (up 7,191 per cent) and The Federal Bank (up 5,971 per cent) followed in that order.

IndusInd Bank and ICICI Bank advanced more than 3,000 per cent in this period, while public sector lenders SBI (up 1,289 per cent) and Bank of Baroda (up 644 per cent) have remained top laggards.

But both Nifty Bank and Nifty have seen some loss of momentum in recent days; while the former has almost plateaued, with just 1 per cent return since the beginning of this financial year till November 8, the headline Nifty index is up 2.5 per cent.

Any drag on the financial counter may put pressure on Nifty, which is less than 150 points away from its all-time high of 12,103. The financial counter had 40 per cent weightage in Nifty as of October 31. Nifty and Bank Nifty enjoy a very high correlation of 0.99.

HDFC Bank holds the maximum of 10.87 per cent weightage in the 50-share Nifty, while ICICI Bank, Kotak Mahindra Bank and Axis Bank have 6.11 per cent, 4.30 per cent and 3.35 per cent, respectively.

Chartist Milan Vaishnav of Gemstone Equity Research & Advisory Services, says on the weekly charts, there is an inverse rotation of Nifty and Bank Nifty compared with the broader CNX500 on the Relative Rotation Graph.

“While Nifty has topped out in last couple of weeks, Bank Nifty is in the process of bottoming out. The relative momentum is strongly improving with long tails, and it is moving towards the improving quadrant,” he said.

He, however, said Bank Nifty may soon see a turnaround in the coming weeks and start outperforming Nifty.

AK Prabhakar, Head of Research, IDBI Capital Markets, remain bullish on private banks. “I like ICICI Bank, IndusInd Bank and SBI. They are the major beneficiaries of the new tax regime. Next quarter onwards, the new tax rate will benefit them,” he said.

Abhimanyu Sofat, Head of Research, IIFL Securities, said private sector bank stocks will continue to do well going forward. He likes Axis Bank and ICICI Bank.