BackBank Nifty hits 44,000 for first time. Here are the key triggers ahead
Nifty Bank continued its northbound journey, marking yet another new high on back of decline in inflation data
PremiumIndian stock markets rose today while banking stock index Bank Nifty hit record high, lifted by strong global equities after cooler-than-expected consumer price increase in the US. Bank Nifty hit the 44,000 level for the first time as financials continued their recent outperformance. At 9:40 am, Bank Nifty index was up 0.35% at 44,089.
Banking stocks have significantly outperformed the broader markets this year on expectations that a pick-up in economic activity and easing of monetary policy stance by RBI will benefit financials. The Bank Nifty index is up nearly 25% year to date as compared to 7% rise in Nifty50 index.
Global equities were mostly higher after data released on Wednesday showed consumer price index in November rose 0.1%, after advancing 0.4% in October. Economists polled by Reuters had forecast the CPI gaining 0.3%. The slowdown could lead the Fed to scale back the size of rate hikes at its policy meeting that ends today.
Some analysts however remain cautious that gains in Indian markets could be capped in short to medium term due to high valuations and probability of a recession in the US.
“The lower-than-expected November CPI inflation in the US which came at 7.1 % YoY and only 0.1% MoM confirms the market expectation that the Fed will hike rate by only 50 bps today. The consensus terminal Fed fund rate is now slightly below 5%, which is market positive. However, since recession in the US in 2023 is a high probability event, the market is unlikely to surge," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
"In India, the bank index, and within the bank index the PSU bank segment, is the strongest segment and this can continue to remain resilient. HDFC twins exhibit strength. The recovery in the IT segment has some more steam to go. The resumption of FII buying is another positive. However, Nifty is unlikely to break out of the 18,400-18,800 range and sustain at higher levels. High valuations are likely to cap the rally," he added.
The Federal Reserve will announce its monetary policy tonight.
“Financials continue to outperform on the back of strong credit growth, where non-food bank credit grew 18.3% in Oct 2022 vs 6.9% a year back, along with improving balance sheets, where most of the provisioning for bad assets is behind us with improving NIMs due to increasing interest rates where assets are getting re-priced faster than liabilities for banks," said Nishit Master, Portfolio Manager, Axis Securities PMS. Kindly take it forward.
He expects this outperformance for banks and the tailwind for the sector to continue for 2023.
“In the short term, after yesterday's inflation print in the US, there is an expectation in some quarters that the US Fed might turn less hawkish in the upcoming policy, which will support the markets. Our base case for Fed Policy on 14th December is a 50bps hike. If the hike is lower than that, we expect the risk assets, including emerging markets like India, to outperform in the near term," he said.
ICICI Bank, Axis Bank, Federal Bank and SBI are among the top banking picks of Motilal Oswal.
“The lending rates for Banks have been constantly increasing over the past few months, in tandem with the rise in the repo rate. However, the increase in deposit rates has been at a slower pace. As the competitive intensity to garner deposits has started to intensify, we expect deposit rates to increase, thus driving an increase in funding costs. A higher LCR (liquidity coverage ratio) and a healthy CASA mix can lead to a calibrated increase in deposit rates, given the ample liquidity. Banks, with a higher mix of floating-rate book, stand to benefit from the continued monetary tightening as RBI further increased the repo rate by 35bp on 7th Dec’22 and maintained withdrawal of its accommodative stance to keep inflation under check (unchanged)," the brokerage said.
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