Nifty Bank Hits 51,000 Mark for the First Time Ever

Nifty Bank’s Historic Milestone

Nifty Bank surged by 4.09% on Monday, reaching an all-time high of 51,133. This significant milestone marks the first time the index has crossed the 51,000 mark, with the previous close being 48,983.95. The index comprises both private and state-run lenders, reflecting the sector’s overall health and performance.

Key Drivers of the Surge

The recent surge in Nifty Bank can be attributed to multiple factors, primarily the favourable exit poll results indicating a decisive victory for the NDA in the 2024 Lok Sabha elections. This political stability prospect has boosted investor confidence, driving the index higher.

In addition to the political scenario, robust financials and economic data has played a crucial role. Indian banks have reported solid earnings growth in the fourth quarter of FY24, primarily driven by robust loan growth. The net profit growth of listed banks was bolstered by an increase in other income and credit growth, though net interest margins showed varied trends due to rising funding costs. The total net profit of listed public and private sector banks in FY24 surged by 39% year-on-year (YoY), surpassing Rs 3 lakh crore for the first time. Specifically, the 26 private lenders recorded a net profit of Rs 1.78 lakh crore, while the 12 public sector banks reported a net profit of Rs 1.41 lakh crore in FY24.

Additionally, India’s Q4 GDP grew by 7.8%, and the full-year growth for FY24 stood at 8.2%.

Historical Context

The Nifty Bank has shown remarkable growth over the years. Trading near the 25,000 level in August 2017, the index rose to 32,600 before the COVID-19 pandemic caused a significant crash, taking it down to 16,100 in March 2020. Fast forward to today, the index has crossed the 50,000 mark, marking a 213.4% rise since the COVID-19 lows. It took two-and-a-half years for the index to scale the 10,000-point journey from 40,000, having first crossed this mark in October 2021. The Nifty Bank has doubled over the last six years, first crossing the 25,000 mark on July 27, 2017.

The recent rally can be largely attributed to the performance of state-run lenders. For instance, Punjab National Bank returned 147.51% over the past year, while Bank of Baroda and State Bank of India delivered returns of 41.85% and 41.41%, respectively.

Here’s a closer look at the performance of some key banks for the last 1 year

Heavyweight stocks of Bank Nifty like HDFC Bank and Kotak Mahindra Bank have contributed negatively to bank nifty over the past 1 year

Comparative Sector Performance

Despite its recent surge, the Nifty Bank was the worst-performing sectoral index in 2023 with a return of 12.3%. Even this year, as of Friday’s close, it has yielded only 1.5%. In contrast, the PSU Bank Index has rallied by 32.5%, while indices for Realty and Auto have risen by 30% and 26%, respectively. The recent rally in Nifty Bank can be largely credited to the robust performance of state-run lenders over the past year.

Top 5 components of Nifty Bank today are

Conclusion

Nifty Bank hitting the 51,000 mark is a significant milestone, driven by a combination of favourable exit poll results, strong economic data, and robust performance by state-run lenders. As the official election results are awaited, a favourable outcome suggesting policy continuity could drive further inflows from Foreign Institutional Investors (FIIs), especially if coupled with reduced US bond yields and potential rate cuts. Investors should closely monitor these developments