Bank Nifty Struggles to Surpass 42,000 Mark as Inflation, Adani Controversy, and Foreign Institutional Investors Drag Down Index

The Bank Nifty has had a challenging year so far, dropping by 3%, and is facing difficulty in finding its footing. Market participants are worried about the potential risks to the Indian banking sector due to the Adani Group’s exposure, mounting inflation, and changes in the FII’s actions. Certain analysts think that the index is currently in a consolidation phase, struggling to surpass the high it reached on Budget day, which was 42,016.

What is causing dismay in Bank Nifty?

Bank Nifty is currently facing challenges to surpass and maintain a firm hold above the 42,000 level. Despite the strong performance of banking stocks in 2022, Amit Trivedi, a Technical Analyst for Institutional Equities at YES SECURITIES, stated that “PSU bank index, the leader of the previous year, has taken a back seat, while many private banking stocks are currently going through a consolidation phase.

FIIs

According to Santosh Meena, who is the Head of Research at Swastika Investmart, the primary cause for this phenomenon is the selling of stocks in the financial sector by foreign institutional investors (FIIs). Although the banking sector witnessed good performance last year, the information technology (IT) industry experienced a downturn. Consequently, FIIs are adopting a tactical approach at the onset of 2023. Even though all banks have reported robust earnings, the market has already taken into account the favorable numbers.

Adani Rout

Meena added that despite concerns over the Adani saga, the outlook for the banking sector remains positive, and valuations are not yet at their peak levels. As a result, the current consolidation or correction presents a buying opportunity for investors.

Inflation

This week, inflation data was released in the US, UK, and India, and while the overall market sentiment is sideways to positive, there were concerns about inflation, which rose more than expected in January 2023. According to Rameshver Dongre, a Research Analyst in Equity Research at CapitalVia, the possibility of rising interest rates in the near future, as suggested by the US inflation data, could be the only factor preventing the Bank Nifty from crossing the 42,000 level.

Technical Outlook for Bank Nifty

According to Trivedi, the banking sector needs to achieve a decisive breakthrough and sustain momentum above 42,000, while also improving its internal breadth, for long-term outperformance. Meena predicts that in the short-term, the 42,000-43,000 range will act as resistance, with potential for bullish momentum towards 45,000 if broken, while 40,000 will provide strong support. Dongre is bullish on the index as long as it remains above 40,900, with a support range of 41,500 to 41,700.