On Friday, the index slid nearly 2% to its intraday low, extending its March decline to almost 11%. After closing above 60,000 in February, Nifty Bank has now shed more than 6,500 points, briefly dipping below the 54,000 mark.
Nifty 50, meanwhile, dropped 7% during the same period, crashing over 1,870 points from above 25,000 in February-end to an intraday low of 23,306 on Friday.
But the question remains, how does a raging war in the Middle East impact banks in India? In case the Middle East conflict continues to spike energy prices and disrupt supplies, India could face pressure on the rupee, higher inflation and a widening current account deficit, Moody’s Ratings recently said.
“Costly energy imports would weaken the rupee, raise inflation, worsen the current account balance and complicate monetary policy as well as fiscal management if they lead to expanded subsidies to help offset the economic shock,” it added.
“But a prolonged disruption in navigation through the Strait of Hormuz, beyond our baseline of a few weeks, would likely trigger sustained supply shortages; prices averaging higher than USD 100 per barrel for Brent, higher inflation, tighter financial conditions, and slower global growth,” it further said. Rising inflation expectations will lead to concerns over the RBI having a lower margin to ease monetary policy. All of these factors will likely impact banks.
The rupee on Friday dropped sharply to hit a fresh all-time low of 92.43 against the US dollar. Bond yields, meanwhile, remained volatile. PSU banks remain more exposed to bond‑yield volatility.The fall in bank stocks may have also been driven by a sharp FII selloff. Foreign investors have been on a selling streak, net selling Indian equities worth Rs 6,267 crore on Wednesday. FIIs have so far sold Indian equities worth Rs 50,119.06 crore over nine sessions till Wednesday.
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Explaining the reason why bank stocks are falling, market veteran Sunil Subramaniam said, “It is a combination of three factors.” Speaking to ET Now, he explained that, firstly, passive money is flowing out of emerging markets and India-specific ETFs. Because banks make up nearly 30–35% of the index, passive fund managers have no choice but to sell. Second, risk-off sentiment toward India is fuelling heavy short positions in Bank Nifty futures. Third, FIIs are actively building negative positions in individual bank stock futures — a technical but potent form of pressure.
What lies ahead?
Bank Nifty closed below the crucial support level of 55,300 on Thursday, indicating strong bearish control over the index, said Vatsal Bhuva, Technical Analyst at LKP Securities. “However, on the hourly chart, a positive divergence in the oversold zone suggests the possibility of a short-term recovery or rebound. Despite this, prevailing panic in the market and Bank Nifty’s high beta nature continue to keep overall sentiment weak. If the index extends its decline, the next key support is placed around 54,500, while on the upside, any pullback or recovery is likely to face resistance near the 56200 levels,” the analyst said.
Market volatility is also expected to remain elevated due to uncertain global cues, rising crude oil prices, and escalating geopolitical tensions, which may continue to weigh on the banking sector and the broader equity market, said Bajaj Broking.
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“Technically, the short-term bias remains negative as long as the index trades below the 56,500 mark. Failure to reclaim this level could lead to further downside in the coming sessions, with the index potentially drifting towards the 100-week EMA, which is placed around the 54,000 level,” the domestic brokerage said.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)