Why we can expect a banking rally

If the Nifty falls, the Bank Nifty and PSU Bank indices will fall less, and if the gauge rises, they will rise more, say analysts

- Ram Sahgal, Gopika Gopakumar & Rhik Kundu

The vastly lower fiscal deficit of 5.1% budgeted by the Centre for the next fiscal year was the catalyst for an outperformance of banking sector to benchmark and other sectoral indices as this lowers the trajectory for bond yields. Among the banks, the National Stock Exchange’s 12-constituent Nifty PSU Bank index outperformed the benchmark 50-stock Nifty, the Bank Nifty, as well as the BSE’s benchmark Sensex and other indices by a wide margin after the finance minister’s interim budget presentation on Thursday. The benchmark bond yield too traded lower.

The outperformance was reflected by the Nifty PSU Bank index closing 3.11% higher at 6,466.45 against the Bank Nifty’s 0.42% gain at 46,188.65, and the Nifty and Sensex closing down by over a tenth of a percent each at 21,697.45 and 71,645.30. Analysts expect the outperformance to persist in the near term—if the Nifty falls, the Bank Nifty and PSU Bank index will fall less, and if the gauge rises, they would rise more.