Bank Nifty surged 2.1% to close at 55,194.50 on Tuesday, marking a significant recovery as it closed above the 55,000 level for the first time in two weeks. The benchmark Nifty also climbed 0.5%, buoyed by positive sentiment following the Reserve Bank of India's recent policy measures.
All 14 constituents of the Bank Nifty index recorded gains, with Bank of Baroda and Canara Bank leading the charge with increases of 5.5% and 4.5%, respectively. Punjab National Bank and Federal Bank also saw notable advances of around 3.5% each.
Analysts attribute the rally to the RBI's measures aimed at supporting banks' deposit bases and reducing funding costs. The central bank's decision to bear the hedging cost on FCNRB and subsidize hedging costs on ECBs is expected to provide banks with access to low-cost global capital, alleviating domestic deposit challenges.
“The measures by RBI are likely to drive a healthy deposit base for banks and lead to cheaper cost of funds since the hedging cost on FCNRB is borne by the Central Bank while the hedging costs on ECB's is subsidised.”
Dharmesh Kant, head of research, Cholamandalam Securities
The market experienced a technical short covering as the Put-Call Ratio (PCR) had dropped into an oversold zone below 0.80 prior to the announcement. This sudden clarity in fundamentals triggered a rapid short squeeze, surprising derivative traders.
The high-volume breakout past the 55,100 mark and decisive price action have shifted the market sentiment from 'sell on rallies' to 'buy on dips', establishing 55,000 as a strong psychological support level.
“The sudden fundamental clarity triggered massive technical short covering, catching derivative traders by surprise and sparking a rapid short squeeze since the Put-Call Ratio (PCR) had dropped into an oversold zone below 0.80 ahead of the news.”
Nishchal Jain, Quant Researcher, Share Market by Phone Pe
Background
The RBI's measures are part of a broader strategy to stabilize the banking sector by ensuring liquidity and reducing currency risk. This move is seen as a critical step in maintaining financial stability amid global economic uncertainties.
Looking ahead, market participants will be closely monitoring the impact of these measures on banks' financial performance and overall market dynamics. The establishment of 55,000 as a support level could lead to sustained bullish momentum in the banking sector.
