Will Bank Nifty outperform Nifty50?

Bank Nifty has faced the brunt over the last 3 years as it has underperformed the benchmark Nifty50 by a wide range. Banking index gained 13% whereas the Nifty 50 rose 38% during this period.

Now the question on everyone’s mind is will Bank Nifty outperform the benchmark going forward?

Being a high beta index, it generally gives better returns than the Nifty50 when we are in a bull market. In a bear market, it tends to fall more than the benchmark.

We have also observed that whenever the banking index underperforms the benchmark, it catches up in the following year. Bank Nifty reverts to the mean and outperforms Nifty after a year of underperformance. It’s the reversion to the mean working at its best.


For instance, both indices delivered negative returns during the calendar year 2011. Nifty 50 was down 16% whereas Bank Nifty fell 32%.
What’s worth noting here is that the banking index made an impressive comeback in 2012. It gained 57% while the Nifty50 rose only 14%. In 2014 and 2017, Bank Nifty outperformed Nifty50 by 29% and 18%, respectively after a year of underperformance.

Over the last two years, Bank Nifty has underperformed Nifty and it seems that Bank Nifty might catch up soon. Check out the charts below.

image 2Agencies

Whenever the Price to Book (P/B) ratio of Bank Nifty trades below the average of 2.5x, the index delivers stellar returns in the next one year. Bank Nifty’s one-year forward return is 37% in months when its P/B ratio drops below 2.5x.

image 3Agencies

From where we stand now, the banking sector seems to have taken a backseat since 2020. However, history implies that it has a good chance of beating the benchmark in the coming year.

For the month of July 2022, the P/B ratio has already fallen below its average of 2.5x. On a year-to-date basis Bank Nifty has outperformed Nifty by 4%. Nifty50 has fallen 9% and the Bank Nifty has only shed 5%. Thus, investors must look out for signs of further outperformance from Bank Nifty.

Technical Outlook
Nifty50 closed negative for the week after consolidating around 16,200 which coincides with previous support and the falling resistance line. However, we believe the market is still oversold as India VIX is continuously forming lower tops and even breaking below the crucial level of 18. Major global indices are also finding support at current levels. We believe the benchmark index is likely to sustain above the 15,800 zone and might be heading towards 17,000 levels as well. Immediate support and resistance are now placed at 15,500 and 16,300 levels.


Expectations for the week
Indian benchmark indices are expected to continue their indecisive phase in the near term as fear of rising inflation and recession looms over the global economy. Amid this backdrop, investors are expected to keep an eye on the currency market as USDINR has hit fresh all-time lows of 80.23. Further, with quarterly earnings in full gear, stock-specific movements are expected to dominate the bourses in the short term. Additionally, the banking herd will be in limelight next week as they report their numbers. Nifty 50 closed the week at 16049.20, down by 1.06%.

Source link

Recent Posts

Scan to Download
ios&Android APP

Open trading account and start trading!

Join our happy customers