Bank Nifty near 29,000: Should you avoid taking fresh long positions?

Bank Nifty near 29,000: Should you avoid taking fresh long positions?

Banking stocks, especially the large private banks, have been witnessing strong traction of late, keeping their sectoral index aloft.

As of November 17, Bank Nifty has gained 22 percent in November so far against a nearly 11 percent gain in the benchmark Nifty.

Experts point out since COVID bottom on March 23, banking stocks rally remained fairly muted due to pandemic-related uncertainties.

However, banking stocks started to see sharp gains after the September quarter numbers showed they held well during the pandemic’s peak period.

At this juncture, when Bank Nifty is near the pre-COVID level, some analysts advise going for taking a profit.

“Bank Nifty which was on P/Bv multiple of nearly 2.7 times as on the start of March 2020, plunged to 1.58 times as on March 23, 2020, has jumped back to 2.4 times as on November 14. This shows that the valuations have almost reached pre-COVID levels and is a good time to book profits on the backs of certain uncertainty revolving around the asset quality in the near-term,” said Vinit Bolinjkar, Head of Research, Ventura Securities.

Bolinjkar pointed out that some concerns over the sector remain.

He said pursuant to the Supreme Court’s interim order on a standstill of recognition of NPA, the NPA figures of the banks as of Q2FY21 have been muted and do not show a very clear picture.

The banks, however, expect the NPA figures to expand as the standstill is lifted up. Further, provisions to be made on these alleviated NPAs could affect the bottom-line.

Besides, RBI has allowed a one-time restructuring of loans which can be invoked anytime before December 31, 2020.

“Although many banks have made a possible estimation of the amount of book which could possibly go under restructuring, there is a possible uncertainty revolving around the asset quality until the applications start coming in,” Bolinjkar said.

Jaikishan Parmar- Senior Equity Research Analyst at Angel Broking is of the view that Bank Nifty may consolidate from here on till Q3FY21 numbers give fresh direction.

“Looking at Q2FY21 numbers, sufficient non-specific provision and lower expected restructure book will support large private bank’s stock prices. We expect time-wise correction in a large private bank not price correction. Consequently, Bank Nifty may consolidate from here on till Q3FY21 numbers give fresh direction,” Parmar said.

Bank Nifty has a significant role in keeping Nifty near record-high levels. However, Bank Nifty is a sectoral index and it moves as per the action in its components.

Hence, trends of Nifty may not be suitable to anticipate the trends of Bank Nifty.

Shrikant Chouhan, Executive Vice President (Equity Technical Research), Kotak Securities believes above 29,000 levels, Bank Nifty would move to 29,550/29,650 levels.

“Around these levels, long traders should avoid taking any fresh long positions. Contra traders should buy a put option with a final stop loss at 29,800. I have mentioned all spot/cash levels,” said Chouhan.

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