Is Nifty Bank entering bear market?

The war induced inflation led by surge in prices of crude oil and base metals will not only contract margins of India Inc but will also jeopardize growth as companies usher in another round of a price hike. With growth being hampered banks will be on receiving end and this is visible from the fact that the

Nifty Bank tanked 20.73% or 8,671 points from all time highs of 41,829 that it hit on October 25, 2021 to 33,158 levels on March 08, 2022. The 21% fall in Nifty Bank is much deeper compared to 15% fall in headline index of Nifty 50.

A closer look of the index shows that index heavyweights such as ICICI Bank, Axis Bank, Kotak Mahindra Bank and HDFC Bank all plunged around 20%.

One of the primary reason for this fall in banking counters is relentless selling by FIIs in Indian markets. According to Motilal Oswal Financial Services FII allocation in BFSI at 20-quarter low; declines for fourth straight quarter basis December 2021 data. In terms of absolute holdings, out of the total FII holdings of USD677b, Private Banks topped with USD136b in investment value. An analysis by Money9 team reveals that of the 6 out of top 10 stocks in which FIIs have maximum stake were from the BFSI sector.

Daily developments should be closely monitored

The continuous selling by FIIs led Nifty Bank to trade below the 50-Day Moving average of 36,929 and 200-Day Moving Average of 36,188.  Technically 32,573 and 31,857 are the key support levels in the short term while 33,683 and 34,077 will act as resistance.

“Generally, when the index falls more than 20% from the top, it is considered to be a bear market. But practically, we do not focus much on this notion. Though the selling saga in the BANK NIFTY index continued for the fifth consecutive week that dragged the index below the previous swing low placed around 34000 odd zone.

The technical setup got disrupted through the week’s gap-down opening, and the significant technical indicators have also turned southwards amid the ongoing selling spree. As far as levels are concerned, the unfilled gap along with the breakdown zone of 34000 should act as immediate resistance, and till the index subsides below, the further movement of the index remains tentative.

On the downside, any breach below the last session low of 32000 odd zone could dampen the sentiments further.

Hence, till the existing range of 32000-34000 is not breached, we need to keep a close tab on the daily developments. Although from here on, we do not expect any significant correction unless there is some further escalation with respect to Russia and Ukraine.

So, we advise traders not to trade aggressively on the short side now. Traders can continue to stay light, and from a broader view, one can look to accumulate marquee banking names in a staggered manner,” explained Osho Krishan, Sr. Analyst – Technical & Derivative Research, Angel One.

Fundamentally the Q3FY22 performance of the banking space demonstrated loan growth pick up. While the operational performance improved due to growth, lower credit costs propelled earnings trajectory. NIIs grew 9.7% YoY led by advance growth, while margins improved average 10-12 bps.

Asset quality improved sequentially as lower slippages and better recoveries helped the overall performance. GNPA ratio for banks declined in the range of 30-150 bps with overall decline of 45 bps QoQ to ~5%. Restructured book also declined by an average of 25 bps QoQ, thus indicating overall reduction in stress.