Nifty Bank hits 6-month low; RBL, Bandhan, AU Small tank up to 10%

Nifty Bank was trading lower for the sixth straight day, having fallen 8 per cent during the period

Nifty Bank index tumbled to a six-month low, down over 4 per cent on the National Stock Exchange (NSE), in Monday’s intra-day trade after a sharp correction on private sector banks as foreign investors continued pulling out funds from Indian equities.

AU Small Finance Bank, Bandhan Bank, Federal Bank and RBL Bank from the Nifty Bank index tanked between 6 per cent and 10 per cent on the NSE. IndusInd Bank, IDFC First Bank, ICICI Bank, HDFC Bank, State Bank of India and Axis Bank were down in the range of 4 per cent to 5 per cent. Meanwhile, Bandhan Bank, City Union Bank and DCB Bank hit their respective 52-week lows on the bourses.

At 12:53 pm; Nifty Bank index was down 4.4 per cent at 34,058 as compared to 3.3 per cent decline in the benchmark index Nifty50 at 16,433 on concerns about more curbs to tackle the omicron Coronavirus variant and a spike in global inflation threatening the economic recovery. Nifty Bank index hit an intra-day low of 34,048, its lowest level since June 21, 2021.

The index was trading lower for the sixth straight day, having fallen 8 per cent during the period. From its 52-week high level of 41,830 on October 25, 2021, Nifty Bank index corrected 19 per cent as against 12 per cent decline recorded by Nifty50 index from its peak level.

Foreign portfolio investors (FPIs) have been withdrawing funds on a daily basis this month. In fact, FPIs have been net sellers since April'21, with the exception of September'21. Bank Nifty has been a major victim of this selling spree, with most of the top ten constituents of the index experiencing a sequential drop in FPI holdings for the quarter ended September 2021. Since October 2021, FPIs have sold equities worth of Rs 32,965 crore ($ 4.39 billion), NSDL data shows.

Bank Nifty has been a relative underperformer not only since the outbreak of the pandemic, but also on a year to date and 6-month basis. This is not unusual as historically, a link between the sell-off by FIIs and the underperformance of the Bank Nifty has been observed. If we look at the twelve months with the highest FII outflows since 2017, Bank Nifty has underperformed the benchmark index two-thirds of the time, Yesha Shah, Head of Equity Research, Samco Securities said.

While there is no evidence of bullish momentum, Bank Nifty is trading at a crucial support which coincides with its rising trend line. The previous resistance of 35,600 is now acting as a strong demand zone, thereby offering a good risk-reward opportunity on the long side. Traders can maintain a neutral outlook and trade with tight stop losses below immediate supports for long positions, the brokerage firm said on technical outlook.

With the asset quality pain largely behind, banking stocks would hereon largely track growth. Rising inflationary pressures may raise prospects for a rate hike, but Emkay Global believes the policy response will be measured as economic growth also needs to be anchored to a comfortable zone. In their view, improving underlying consumption demand and asset-quality normalization should support growth. Emkay expects large banks with higher consumer credit portfolio to be the early beneficiaries, the brokerage firm said in November banking sector report.