Bank Nifty could outperform even more if it crosses 27,000

Mumbai: The outperformance of bank shares compared to the Nifty will depend on whether the Bank Nifty breaches the crucial 27,000-mark. The Bank Nifty, which closed at 26,826 on Friday, has performed better than the Nifty in the past three months, as indicated by the Bank Nifty to Nifty price ratio which has shot up to a six month high last week.

The Bank Nifty has gained 2.77 per cent in the last four days and Nifty gained 3 per cent. The state elections outcome and the government’s decision to appoint a new RBI Governor gave a sentimental boost to the market. Bank Nifty witnessed one of the sharpest recoveries since April, according to Gupta.

“In last four days we have seen strong recovery in the Bank Nifty. It made low near 26,500 and high near 26,950,” said Chandan Taparia, derivatives analyst at Motilal Oswal. “It is finding multiple hurdle near 27,000. If it sustains above 27,000, then fresh momentum of 500-700 points can be seen,” said Taparia.

The 27,000 put of the Bank Nifty added nearly 6,500 contracts last week as investors bought protection against their long portfolio. A close above 27,000 is likely to trigger short covering. Analysts believe that the index is unlikely to fall below 26,500 in case of any negative trigger.


“There are short positions in the index and those shorts are stuck as the index moved up fast after the election results. Short covering move could be there in the stocks and the index,” said Amit Gupta, Head of Derivatives at ICICIdirect.

So far in December, Bank Nifty has fallen 0.1 per cent, outperforming the Nifty which has fallen 0.65 per cent. Since October, the Bank Nifty has gained 6.8 per cent while Nifty has fallen about 1.1 per cent. Analysts said Bank Nifty’s price ratio to the benchmark index has remained near 2.48 level, the highest since June this year.

Gupta said that if Bank Nifty starts moving above 27,000, then we could see another 500 point gain in the December series.

“The lower bond yields are coming as a support for Bank Nifty right now. The US interest rate statement has been dovish and inflation figures here have been good. Yields have corrected after that, it was close to 7.9 and now it is 7.4,” he said.