Nifty Bank fell over 2.5 percent on Wednesday, breaching the 40,000-mark to hit its intraday low of 39,503 on the back of a broader market sell as the rupee fell to its record low, crossing 80 per dollar-mark. Further, the 75 bps rate hike by the US Federal Reserve earlier this week also kept investors cautious.
Indian markets followed global peers to extend losses for the third straight session, down nearly 1.5 percent in intra-day deals. All sectors, except IT and pharma, witnessed a decline.
Meanwhile, Nifty Bank extended losses for the third straight session, down nearly over 4 percent since Wednesday, September 21.
"The Bank Nifty index witnessed selling pressure at higher levels and remains in a sell-on-rise mode as long as it stays below the level of 42,000. The index's immediate downside support stands at 40,500 and a breach below this will open gates for further downside toward the 39,000 level. The index is trading in a tight range between 40,000-42,000 and a break on either side will give a directional move to the index," said Kunal Shah, Senior Technical Analyst at LKP Securities.
All constituents of the banking index were also trading in the red. Punjab National Bank fell nearly 5 percent followed by IDFC First Bank, Bank of Baroda and Federal Bank which shed over 4 percent each. Bandhan Bank also lost 3 percent whereas Axis Bank, HDFC Bank, AU Small Finance Bank and IndusInd Bank declined over 2.5 percent each. ICICI Bank, Kotak Bank and SBI also fell around 2 percent each.
However, the space has been an outperformer, up 12 percent in 2022 YTD versus a half a percent rise in benchmark Nifty. Last week the index hit its record high of 41,831 but has been volatile since then.
Most experts believe that the sector will continue outperforming going ahead.
According to Pranjal Kamra - CEO, of Finology Ventures, the banking sector is expected to continue outperforming on account of improving economic outlook and credit growth recovery. Another factor that outweighs the segment is strong buying by FIIs, he added. Due to the low cost of funds and scale advantages, large-sized banks will benefit the most from this trend, noted Kamra.
Sunil Damania, Chief Investment Officer, MarketsMojo noted that a prominent reason for banking's exceptional performance has been due to the strong return of FIIs seen in July, August and September MTD. FIIs typically hold a passive strategy and invest in the Nifty 50, which is heavily tilted towards banking stocks, explaining the sector's growth, he pointed out. At the same time, NPA levels of the banking sector have reduced, which helped boost market sentiments towards banking stocks, he added.