Nifty, Bank Nifty: While the start of 2023 hasn’t been good due to profit booking, analysts say the recent correction in Bank Nifty has set up the banking index favourably for investors looking to buy at discounted levels.

Bank Nifty, Nifty50: Bank Nifty has fallen 9% year-to-date as compared to a 6.2% fall in the benchmark Nifty 50 index. The banking index is also down 11.5% from its 52-week high and has attracted investors’ attention who are looking to buy on dips. Bank Nifty saw significant outperformance in 2022, supported by solid fundamentals. While the start of 2023 hasn’t been good due to profit booking, analysts say the recent correction in Bank Nifty has set up the banking index favourably for investors looking to buy at discounted levels.

Bank Nifty ready at pole position to beat Nifty 50 when race starts

“Bank Nifty has been outperforming the Nifty since early 2022 and now with the current cool-off for the last two-and-a-half months, we feel that the next leg of the rally in banks is around the corner. Ratio charts of Bank Nifty to Nifty have formed a Bullish Cup & Handle formation on its long-term charts which means Bank Nifty is likely to retain leadership once markets rebound from lower levels,” said Rahul Sharma – Director, Head – Technical & Derivative Research, JM Financial Services Ltd.

“We believe that while on an immediate basis, India is getting impacted by what is happening in the west, on a medium-term basis it is a great time to be buying banking stocks. In fact, the Lehman Brothers crisis was the best time to buy banks and that was the time when there was a lot of panic. The recent fall in Nifty Bank suggests that it could be the biggest beneficiary once the market catches up the pace on the upside,” said Raj Vyas, Portfolio Manager at Teji Mandi.

Bank Nifty valuation concerns subside, numbers become favourable

“In terms of numbers, the Bank Nifty index is now trading at 2.6x, just above its 10-Y average of 2.1x so there is no valuation concern either,” said Raj Vyas of Teji Mandi. “Valuations are still below their peaks and fundamentals are still quite solid. The banking industry is in the best condition it has been in many years; therefore, the outperformance is expected to continue,” said Parth Nyati, Founder, Tradingo. “Bank Nifty has the potential to outperform Nifty in the next one year, provided, we do not see any major selloff in global markets and the current investor fears of a global slowdown recede,” said Aamar Deo Singh, Head Advisory, Angel One.