Nifty Bank Outperforms on Frontline Indices: Boosted by Easing WPI Inflation

The Nifty Bank Index is a vital benchmark for tracking the performance of Indian banking stocks. This index consists of the most liquid and significant banking companies listed on the National Stock Exchange of India (NSE), with a maximum cap of 12 constituent companies. The index is calculated using the free float market capitalisation method, making it a reliable indicator of the banking sector’s health in the capital market.

Nifty Bank Performance Overview 

The Nifty Bank Index ended its session on December 16, 2024, almost unchanged, yet it managed to outperform the broader frontline indices by a respectable margin.

• Top contributors: ICICI Bank emerged as the top contributor to the index’s strength, followed by IndusInd Bank, Axis Bank, Bank of Baroda, and Punjab National Bank (PNB).
• Lagging contributors: HDFC Bank, the stock with the highest weightage in the index, dragged the index down. Other laggards included AU Bank, State Bank of India (SBI), and Kotak Mahindra Bank.

Valuation Trends

A crucial valuation metric for the banking and financial sector is the Price-to-Book (PB) ratio.

• The Nifty Bank PB ratio is currently near its 1-month high and above the three-month average, indicating improved market sentiment in the short term.
• However, it remains below the 6-month average and longer-term averages such as 1, 2, and 5-year metrics, reflecting a cautious medium- to long-term outlook.

Macroeconomic Influence: WPI Inflation Data

One of the driving factors behind Nifty Bank’s relative outperformance is the easing wholesale price inflation (WPI) figures.

• WPI Inflation: Dropped to 1.89% in November, compared to 2.36% in October, due to a slower rise in food prices.
• Food Inflation: Fell significantly to 8.29% in November from 11.59% in October. Notably, vegetable prices increased by 28.57% year-on-year, a sharp reduction from the 63% surge in the previous month.

The cooling inflation numbers indicate improved stability in the economic environment, which has a direct impact on the banking sector’s growth and performance.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.