Budget 2021: Bank Nifty skyrockets on privatisation plan; re-rating on cards for Bank stocks?

Union Budget 2021: Dalal Street marked one of its most significant rallies today after the Finance Minister unveiled her Budget for the coming fiscal year. Sensex jumped a massive 2,314 while the broader Nifty galloped 4.74%. This was aided mainly by the Banking stocks where IndusInd Bank zoomed 15%, ICICI Bank soared 13%, and State Bank of India jumped 11%. The move comes after the Finance Minister announced the setting up of an Asset Reconstruction Company and further introducing a plan to recapitalise public sector banks. Along with these steps, the government has also announced the intention to privatise two state-run lenders. 

“The privatisation of two public sector banks was not expected, which could be fueling this surge,” said Abhimanyu Sofat, Head of Research, IIFL Securities. He added that this combined with the sentiment that nothing negative has been announced in the budget this year aided the up-move charted by the banking stocks on the budget day. “Setting up an ARC is a good move. The proposal to set up a bad bank has always been there. However, the move is more execution-oriented,” Sofat added.

Among the sectoral indices, Nifty Bank was the best performed zooming 8.26% on Monday, followed by Nifty Private Bank index, up 8.06%, and then Nifty PSU Bank, up 7.83%. The move to privatise two public sector banks has enthused the market, according to Ajay Bodke, Analyst & Commentator on Economy & Markets. “The focus will be on the entire banking sector as it is a pro-growth budget and banks are a proxy of the economy,” Bodke added. He further said that the market could be eyeing PSU Bank stocks for their valuations where he sees scope for re-rating. 

Abhimanyu Sofat expects most of the banking space to do well but is keenly watching the space to ascertain where the benefit of privatisation could flow from. “Overall the sector has underperformed so we can expect it to do well,” he added.

Bank Nifty has managed to outperform the benchmarks for the last few trading sessions and the budget announcements aided that. “Bank Nifty has been bucking the trend since last couple of sessions, while the broader market was correcting brutally. This outperformance has now turned into leadership and hence, staying beyond 33000, unfolds fresh leg of the rally for the banking index. Above this, next levels to watch would be 34500 – 35000,” said Sameet Chavan, Chief Analyst-Technical and Derivatives, Angel Broking.

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