Bank Nifty may outperform in near term, catch up with Nifty

Mumbai: Rich traders with high risk tolerance could sell the Nifty and buy the Bank Nifty, with the latter set to outperform the former.

The trade involves buying two lots of active month Bank Nifty futures and selling one lot of active Nifty futures contract for a reward of around 9 per cent or more in the very near term. The Nifty spot closed at 10,142.15, while the Bank Nifty ended at 21,034.5 on Friday. The ratio, at 2.07, could rise to 2.25 very shortly. This implies profit of 8.69 per cent if the rally continues.

“The ratio chart of Bank Nifty-Nifty hints at outperformance of the Bank Nifty, in the immediate term, with a rise to 2.25 or higher from the current 2.07,” said Chandan Taparia of Motilal Oswal Financial Services. “The risk is of the ratio heading below the support of 1.9, in which case the Bank Nifty could underperform the Nifty.

Analysts cautioned that sentiment on banking stocks could be hit in case they had to forgo interest on loans under moratorium from March-August end in context of a PIL hearing on the matter in the Supreme Court. The apex court will take up the matter on June 12.

However, analysts cite the catching up the Bank Nifty has to do with the Nifty, which has met both 38.2 per cent and 50 per cent retracement levels from the high of 12,430.5 to the low of 7,511.1 in March. In contrast, the Bank Nifty’s 38.2 per cent retracement falls at 22,418, which means spot Bank Nifty has to rise by over 1,380 points from Friday’s close to meet that level. “This could well happen,” said Rajesh Palviya of Axis Securities.

“The trade makes sense as the Bank Nifty could outperform the Nifty, going forward,” said Rohit Srivastava, founder, IndiaCharts.