Nifty Bank history suggests it may be gearing up for rally after 4 weeks of fall

Nifty has fallen for four straight weeks and if history is to go by, the index may be headed higher, JM Financial said in a note. The brokerage noted that there was only one instance in the last 10 years when the banking index took its losing streak to five weeks and one instance of it closing for six weeks in a row.

Nifty Bank hit a high of 46,310 in September following which it has been facing continuous selling pressure at every rise. JM Financial said a negative close on a weekly basis beyond five weeks is unlikely. Any selling in the index this week should be used as a buying opportunity for a sharp bounce up in the near term, it suggested.

JM Financial said Nifty Bank has seldom closed in the red for more than four consecutive weeks since 2013.

"It is mostly followed by a sharp bounce up from the 5th week onwards. A total of five such instances has been observed. An exception has been the instances during the year 2018 (negative close of five consecutive weeks, followed by a sharp bounce up) and the year 2020 (negative close of six consecutive weeks, coinciding with the surge of Covid- 19 cases, followed by a massive bounce up)," it said.

JM Financial said in the last five instances where the index delivered negative returns for four straight weeks, the index saw an immediate a sharp bounce. The average return on a weekly basis stood at 2.2 per cent, the brokerage said adding that the index closed in the green on all the five instances. The highest return stood at 6 per cent and lowest return at 0.4 per cent. The two week average return stood at 5.8 per cent and four week at 6.7 per cent.

In the last 10 years, a total of one instance has been observed where the Nifty Bank closed in the red for five consecutive weeks, followed by an immediate bounce up. The return of one-week, two-week and four-week period stood at 3.9 per cent, 2.6 per cent and 5.1 per cent, respectively.

Meanwhile, the was on instance where Nifty Bank closed in the red for six consecutive weeks, but witnessed immediate recovery thereafter. It coincided with the surge of Covid-19 cases, JM Financial said. The return of one-week, two-week and 3-week period stood at 15.4 per cent, 19.9 per cent and 24.8 per cent, respectively.

As far as the recent banking commentary is concerned, banks are all set to record one more quarter of excellent advances growth, said Centrum Broking. "However, we have baked in NIMs compression for banks giving increase in cost of funds. Moreover, a controlled increase in operating expenses and favourable asset quality will contribute to stronger growth PAT figures,' it said.

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