Bank stocks: Seven banks account for 40% of Nifty’s latest 1,000-point rally


ET Intelligence Group: The classical pre-poll sectoral rotation by investors to ‘domestic cyclical’ from ‘growth’ stocks has fuelled the recent rally in banking stocks. This has amplified the price ratio between the Bank Nifty and the NSE Nifty to a record high.

At the current reading of 2.59, compared with the 15-year average of 1.89, the price ratio is two standard deviations from the mean. Statistical theory suggests that about 95 per cent of all price moves of a security or index are within two standard deviations. The current level, therefore, is a rare phenomenon.

The momentum in banking stocks has helped the Nifty touch a new high, given the 36 per cent weight these stocks have on the NSE’s benchmark index. HDFC Bank, ICICI Bank, State Bank of India and IndusInd Bank have gained 10-21 per cent since the NSE Nifty hit its recent low in February 2019. Out of the top 10 stocks that pushed the index to a new high, seven are from the banking space and these have contributed 40 per cent of the index’s last 1,000-point gain.

This is the first time in almost three years when the Nifty’s gain has come primarily due to support from banking stocks. The NSE Bank index is trading at 2.75 times its book value, the highest since 2010 and against the 15-year average of 2.12.

The Bank Nifty rose 12.3 per cent since the beginning of the year, while the Nifty gained 8.45 per cent. All constituents of the NSE bank index are trading above the 200-day moving average, while for the Nifty index, 74 per cent of the stocks are above that level.

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