The week gone by saw banking stocks or the bank sector index chipping in and play a catch up with the kind of trends that have been witnessed across other sets of indices, said CK Narayan of Growth Avenues.
The markets closed at all-time highs on three out of 5 days last week. Moreover, on those days it set all-time intraday highs as well.
Narayan said though it was the private banks, which looked up a bit, the public banks too got a shot in the arm post the news about holding company. “It is banks which pushed everything up. With about 20 percent kind of weightage they have pushed the Nifty also up a tad, although others were not performing,” he said.
He feels there is a lot more steam left in the Bank Nifty, which rallied 5 percent last week.
Sandeep Shah of Motilal Oswal Private Wealth Management continues to remain bullish on private sector banks. He feels public sector undertakings (PSU) banks will offer buying opportunities. He said that banks like Axis Bank and ICICI Bank might actually tend to outperform.
Below is the transcript of CK Narayan and Sandeep Shah’s interview with Latha Venkatesh and Anuj Singhal of CNBC-TV18.
Anuj: What do you make of a week like what we had this week? The Nifty was up about 1 percent or so but the Bank Nifty rallied big time and we had massive midcap outperformance?
Narayan: The Nifty had a pretty decent run ahead of this week. It was actually a week wherein the banking stocks or the bank sector index had to chip in and play catch up with the kind of trends that we have been witnessing across the other sets of indices.
The IT index is anyway trading at a new high. So, it was the private sector banking which looked up a bit in the last week and with the news about the holding company, etc to be announced, the public sector units also got a shot in the arm this week, led from the front by State Bank of India and with almost all names pitching in, it is banks which pushed everything up. With about 20 percent kind of weightage they have pushed the Nifty also up a tad, although others were not performing.
However, as we look ahead into the next week if you see, banks are up, autos are up and IT is up and between them what they would probably control about 40-50 percent of the weightage of the Nifty as a whole which means that in the next week also we should be looking forward to some further gains assuming that these three major sectors sort of continue to hold their own and pharma also chips in further.
Latha: Whenever we speak to analysts or economists, there is still a lot of skepticism about the economy especially bank analysts shaking their heads about the amount of NPLs in the PSU banks in particular but they have come out and performed brilliantly this week itself and in fact for the past two weeks. If you go by the charts, which banks look good to you? As an index does the Bank Nifty look like a long strategy up to the end of this contract or even perhaps for the next contract?
Narayan: The Bank Nifty is just sort of warming up right now. Like I said earlier it has to play catch up with the big strikes made by the Nifty. Within that we are seeing most of the good names barring maybe ICICI Bank a bit. HDFC Bank is very well placed. Kotak Mahindra Bank is extremely well placed. State Bank of India is bouncing up from a decent level of support and ICICI Bank is up there anyway. What it needs to do is chip in further. These are the four major banks in the whole of the banking index. Along with YES Bank together they are 70-75 percent of the weightage.
With all of them looking good along with Axis Bank, there is a lot more to come as far as the banking index is actually concerned. So, I would more certainly look for fresh long positions. A lot of it seems to have been constructed maybe through the last two sessions. You saw the volume in banking sector. Bank index, for example, almost sort of rivalling the volume in Nifty which is a kind of rarity. There has been a huge build up in positions as well. So, there is lot more steam left in the Bank Nifty.
Latha: Your thoughts on the banks?
Shah: Broadly continue to remain bullish on the private sector banks and public sector undertakings (PSU) banks will offer buying opportunities like we saw couple of weeks back. Broadly given the fact that we are in a bull market given the fact that we are at a stage where the economy is rebounding from a decade low, from 4.5 percent maybe going back up to at least 5.5 percent this year and accelerating to 6.5 percent.
What will tend to happen is the banks like Axis Bank and ICICI Bank might actually tend to outperform. The higher quality banks like HDFC Bank and IndusInd Bank Ltd , having said that if you continue to own the HDFC Bank and IndusInd Bank you should continue to stay invested.
If you are looking for little more pop and if you are looking for returns outperformance over three to five years of timeframe, then stocks like Axis Bank and ICICI Bank will give you better returns maybe ICICI Bank even more so because some of parts valuations tends to work better in bull market tends to work with economy recovering.
As the markets starts to price in value of the subsidiaries and the different businesses and on the PSU banking space I would continue to prefer to be with quality and size we should include State Bank of India (SBI) and Bank of Baroda (BoB). If you wish to nibble at some of the smaller banks then you can build smaller positions there and maybe Oriental Bank of Commerce (OBC) which is trading at close to 0.5 times price to book but there of course is the reversion to me theory at work. Overweight banks in general for those with low risk appetite stay with the private sector banks, those with relatively higher risk appetite can play the PSU banks as well.
Latha: What are you looking at as the movement of the market? What would be the Nifty levels that you would watch out for or target for the end of contract and more importantly for the next contract? Do we see 8000 getting taken, what is the safe downside stop loss for this index?
Narayan: That is about four questions in one. First of what do we expect for the Nifty on the upside, 8000? I think 8000 is pretty much well banded about kind of value area that most people are now kind of targeting. If you look at the option position, it would hint at possibly the market taking a view of the current series not really exceeding 8000 levels because we continue to see build up of options at about 8000 levels. If you take some kind of technical targets, etc then you just have some sort of clusters which are slightly north of 8000-8020. So, we might just maybe pipit and try to take out some shorts, create some short-term excitement there.
On the downside very clearly you mentioned about a safe stop-loss. Safe stop loss is very far away. We have been having a sustained run so the last low we saw in the Nifty, the swing low we saw was somewhere around 7650 or closer to 7600. So, that is a fair distance away from where we are currently and that can definitely not be looked upon as a safe stop loss for traders. For a positional player, for holders of long-term positions, that would certainly be qualifying as a safe position.
So, I would probably split the stop loss into two levels. One for longer term players who have positions and are of positional nature or traders, they should probably continue to stick with about 7650. Whereas for shorter term traders who are looking at the end of the settlement, 7840 should be something a lot closer that they need to keep track of. A break below that would probably trip up short-term trends. So, I would split it that way.