Why Banking Stocks Have Been Rallying? Will The Rally Sustain?

After being the worst affected sector, banking sector including the HFC and NBFC stocks have been gaining ground since last two days. One view said that the rally in banking stocks is partially aided due to short covering ahead of May F&O expiry.

Why Banking Stocks Have Been Rallying? Will The Rally Sustain?

Also there has been seen brisk buying in the pack as investors now have been shrugging off concerns on non-performing assets (NPAs) front which may see quick pick-up in days to come owing to coronavirus led lockdown which has brought businesses virtually to a halt. Currently, the pack commands attractive valuation.

Moreover, stock specific news is also aiding the rally in some select counters such as Axis Bank, Indusind Bank, Kotak Mahindra Bank etc.

Following a highest 7% surge in Nifty Bank in over 2 months on Wednesday, the index is again up by almost 2.5%, with weekly gains on the index at 4.9%.

Also, today shares in IndusInd Bank jumped up to 8%, HDFC Bank up 4.94%, Axis Bank up 4.44%, Bandhan Bank up 3.63%, RBL Bank up 2.79%.

Further, institutional buying in the pack due to attractive prices is the main reason behind the rally in banking stocks. Until few days back, FIIs were continuous sellers in the stocks within the pack.

Nifty Bank, which has been bouncing from its support levels for some time also saw short covering and rollover of positions, said Siddhartha Khemka of Motilal Oswal Financial Services.

Will the rally sustain in foreseeable future in banking stocks?

After being heavily beaten down, the sector as it is considered a high beta and so with pullbacks coming in they are also likely to be sharp. Another attribute that is currently given for the rally in banking stocks is aided by the positive global sentiment.

But given the dynamics in India and the performance of the sector in the near term say (3-6 months), there is expected a recovery in the short term but the rally may be difficult to sustain.

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