The financial markets were caught off guard yesterday morning as a tariff hike announcement by former U.S. President Donald Trump sent shockwaves through the market, causing it to open lower. However, seasoned market participants are well aware that price discounts are everything, and the decline had already occurred a day prior to the announcement. This raises a crucial question – what’s next for the market?
Over the past few weeks, the IT sector has witnessed significant profit booking while banking stocks have emerged as market leaders. Based on the Ratio Chart, we believe banking stocks may continue their outperformance and drive the Nifty50 in the coming weeks.
BankNifty / Nifty50 Ratio Chart
Analysing the ratio chart of BankNifty/Nifty50 reveals a bullish Cup and Handle breakout, suggesting that the ratio is poised to move higher. This suggests that the Bank Nifty has the potential to outperform the Nifty 50.
Additionally, the bullish crossover of the MACD above the zero line strengthens the conviction that the Bank Nifty may continue to outperform the Nifty50 shortly.
Given this technical backdrop, two banking stocks stand out with strong risk-reward setups: Kotak Bank and Bank of Baroda (BOB).
Kotak Bank: Breaking Barriers for a Potential Rally
Kotak Mahindra Bank, a leading private sector bank in India, has consistently demonstrated strong financial performance and growth. Kotak Bank remains a preferred choice among investors seeking stability and development in the banking sector.
Kotak Bank/Bank Nifty Ratio Chart
On the ratio chart, a significant breakout from a five-year falling trendline signals the beginning of a strong outperformance phase for Kotak Bank. The bullish range shift, along with a positive MACD crossover, further strengthens the stock’s bullish outlook.
Kotak Bank Weekly Chart
On the weekly price chart, Kotak Bank has convincingly broken out of a four-year consolidation range and is now trending above the ₹2,000 mark. The immediate resistance is placed at its all-time high of ₹2,253. If the stock decisively breaks above this level, it will enter a no-hurdle zone, potentially making Kotak Bank one of the top-performing stocks of the year.
Bank of Baroda (BOB): Momentum Play with Strong Upside
Bank of Baroda, one of India’s largest public sector banks, has been making strides in improving its asset quality, digital banking solutions, and profitability. With a solid presence in both domestic and international markets, BOB continues to gain investor confidence.
On the ratio chart, the BOB/Bank Nifty ratio shows a visible trendline breakout, suggesting that a short-term outperformance of BOB may be underway. The bullish crossover on the MACD and rising momentum further confirm the strengthening bullish sentiment.
BankBaroda P&F Chart
A closer look at the Point & Figure (P&F) chart of BOB highlights a series of Bullish Anchor column breakouts, reinforcing the strong reversal in alignment with overall market momentum. This suggests that retracements in the stock are being aggressively bought by bulls, pushing the price higher. Given the strong momentum, BOB presents a potential opportunity for traders seeking a high-risk, high-reward trade setup.
Banking Stocks Likely to Lead the Market
The bullish setups in Bank Nifty, Kotak Bank, and Bank of Baroda indicate that the banking sector is set to lead the next phase of market outperformance. The strong technical breakouts in these stocks suggest a high probability of continued strength, offering potential trading and investment opportunities.
Note – We have relied on data from throughout this article. Only in cases where the data was unavailable have we used an alternate but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Brijesh Bhatia has over 18 years of experience in India’s financial markets as a trader and technical analyst. He has worked with UTI, Asit C Mehta, and Edelweiss Securities. Presently, he is an analyst at Definedge.
Disclaimer: The writer and his dependents do not hold the Stocks discussed in this article. However, clients of Definedge may or may not own these securities.
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