Weekend Investing Daily Byte - 19 June 2024

Market Overview

It was a dull day overall, but private banks saved the Nifty today. We’ll discuss how the rest of the market did not perform, but private banks, which were not performing so far, were pressed into action to save the Nifty. This is a very peculiar yet prevalent event in the market: one sector or a couple of sectors will push the Nifty up while others are pushing it down. This balancing act happens frequently, and today was not an exception.

For instance, on election result day, the defensive sectors of FMCG and pharma were moving up when risk-on sectors were down. So, where is the market headed? The market remained reasonably stagnant today despite good moves during the day, ultimately coming down to this support level. As you can see on the hourly chart, this is very important for short-term traders. A simple Supertrend indicator or moving average can easily show the trend. Since June 5, we have been in an uptrend, and the current base around 23,426 is now the short-term support level for the Nifty.

Overall, there are no issues with the Nifty, especially with this rotation of sectors that prevented any significant damage. Other sectors faced some damage, but the Nifty remained steady.

Nifty Next 50

The Nifty Junior fell, breaking support and closing at 71,539, down 1%. Given how stretched the Nifty Junior is, some cooling off is expected.

Nifty Mid and Small Cap

Mid-caps were down 1%, losing gains from the last day or two, but this is minor compared to their recent rise. Small caps were down 0.38%, showing remarkable strength compared to mid-caps. Despite the broader market’s performance, small caps have maintained their support level and exhibited strong performance in the last week or ten days.

Nifty Bank Overview

The Nifty Bank Index showed the most strength, making and closing at a new all-time high of 51,450. Just two days ago, we were struggling at 50,000, and in two sessions, we’ve jumped to 51,450, a nearly 3% increase with 1.9% of it today.

FIIS and DIIS

Regarding FII and DII activity, FIIs have been buying in good quantities the last two days, with 2,500 crores of buying yesterday. DII buying was also strong yesterday, indicating good interest going forward. We’ll see the numbers for today later in the evening.

Nifty Heatmap

The heat map shows a clear split: the left side, dominated by financials, banking, and finance, was green, balancing the red on the right side. HDFC Bank was up 3%, ICICI Bank up 2%, Axis Bank up 3%, and Kotak Bank up 1.5%. This balancing act, with a narrative building towards private banking, saved the market today.

Conversely, stocks like Reliance, Bharti Airtel, L&T, Maruti, and Titan were down. The Nifty Next 50 was almost entirely red, with Zomato being a rare green spot. High-flyers like HAL, BEL, Dmart, and LIC saw profit booking, and there was no place to hide in the Nifty Next 50.

Sectoral Overview

Sectoral trends showed private banks up 2% today, up 14% over the last twelve months, redeeming lost ground. They have been underperforming the market, but this recent move is a positive sign. IT remained flat but has shown respectable 21% gains over twelve months. PSU banks were flat today but have done very well over the last twelve months. Other high-beta sectors like real estate, public sector enterprises, infrastructure, energy, autos, and metals all saw profit booking, down between 1% to 2.53%.

Table of Contents

Sectors of the Day
Stocks of the Day

Sectors of the Day

Nifty Financial Index

Looking at the private banking index, it has been in a consolidation phase since October 2021 but is now breaking out, suggesting a potential for a significant move. The financial services index also showed strength today.

Nifty Private Bank Index

So, private banks are saving the Nifty, and here’s how. If we look at the performance mix of private banks versus PSU (public sector undertaking) banks over the last 20 years, private banks have shown a phenomenal gain of 2000% compared to a 386% gain in the PSU bank index. Historically, this impressive performance has made private banking a preferred choice for investors over PSU banking.

However, the last three to four years have been quite revealing. During this period, PSU banks have risen by 479%, while private banks have only gained 100%. This reversal indicates that PSU banks have significantly outperformed private banks recently. It highlights the need for a dynamic investment strategy that allows for switching from lagging sectors to winning ones, and vice versa, as market conditions change.

It’s essential not to have a fixed mindset that one must always buy private banks or always buy PSU banks. The focus should be on performance. Currently, PSU banks are performing exceptionally well within the banking sector.

For instance, over the last ten years, HDFC Bank has gained 440%, while State Bank of India (SBI) has gained 540%. This might be surprising to many, given the strong narrative around private banks like HDFC Bank. Additionally, ICICI Bank has outperformed both, with a 577% gain.

Looking at the data since the beginning of 2021, SBI is up 222%, ICICI Bank is up 115%, and HDFC Bank is up only 17%. While HDFC Bank had an excellent performance in previous decades, it has not met expectations in the last half-decade. This means the capital deployed in HDFC Bank has not been efficiently utilized during this period.