Buy Banking Stocks Ahead of the Budget

Jan 19, 2022

Brijesh Bhatia, Research analyst

The union budget is fast approaching and the market is nervous. Stocks across sectors have sold off.

But there is one sector that is looking strong on the charts. And it is a surprising sector indeed.

Contrary to what many on the street are saying, I think banking stocks could do well in the short term.

And in this video, I'll show you why you should consider trading the Bank Nifty.

Welcome to the Fast Profits Daily. Happy Republic Day to all our viewers.

Well, we had a bad start to this week and being into the expiry week and the last week of the January, the week before the union budget is announced, we had a bear start to the momentum.

Today at 5 PM: Top 3 Stocks for 2022 Revealed

Well, do you think the bullish momentum has taken an end or it is a top which we had made around 18,600 and now at 18,350 is an end of 2022? I certainly don't believe so. Well, considering the Nifty I would consider looking at the Bank Nifty over here, just ahead of the union budget.

Every time there is a budget Bank Nifty is the one which generally takes the lead into the rise or the fall. But let me take you to the memory lane of 2021. Look at the chart over here.

 

The Bank Nifty rallied by around 18% in the budget week which the five days. We have seen a huge rally coming from 30,900 to 36,600 and that 18% move was fast and furious years, which, surprisingly for most of the traders, was unexpected on the D-Street in 2021. But if I look at the ratio chart of Bank Nifty to Nifty, so look at the ratio chart, the second chart over here, the Bank Nifty to Nifty ratio chart.

 

Look at the highs, which was around Feb 2021, the last year budget where the bank nifty has outperformed by a huge margin against the Nifty. Since then, it has underperformed and formed the lower high lower low structure. Just ahead of budget and since the start of 2022, the bank nifty is out performing by a huge margin over the nifty.

Now, if we look at this ratio chart, it is breaking out of the bullish head and shoulder pattern. Again after forming a base. Generally, the bullish head and shoulder when it forms at the bottom, it forms the base and the breakout happens. And that's what we are looking at in the bank nifty to nifty ratio chart.

The second, if you look at the average line, which is 100 days exponential moving average, it has been resisting for quite long, and this is the first time we are witnessing the break out of the head and shoulder. It has closed above the 100 days exponential moving average and the break out has happened.

So it gives the strength that bank nifty is about to outperform against the nifty in few trading sessions or few trading weeks and one should definitely look at it as an opportunity in the bank nifty where the market has dipped in the recent week. Any reversal into the bank nifty space will be an outperformer in the coming weeks for bank nifty. Let's look at the chart to see what Bank Nifty is indicating.

 

Let's look at the weekly chart over here. So we are witnessing the rising channel over here. If you look at the rising channel, which means that prices are trending into the bullish structure. For me a higher high, higher low structure. A rising channel is basically till it is not broken down, the trend continues to remain bullish.

Second thing, if you look at the previous high, which is if you look at the horizontal trend line, it's around 32,600, it has been well respected. And when this long term trends, long term levels are being retested and maintained, market tends to move higher. It plays a key important role.

So I believe with the rising channel, it is indicating this. Plus, if you remember the candlestick pattern, the rising bullish three white soldiers is basically a bullish candle which has formed on the weekly scale over here, indicating the momentum is very, very stronger for bulls.

So with the weekly charts, I think long term trend is still very, very bullish over the year. Look at the top down approach in move on to the daily scale over here.

 

If you look at the daily scale over here, the retracement levels from 34,000 levels to around for 38,850, 38.2% comes at around 37,000 levels and 50% comes at around 36,434. If you look at the historical moves when the certain trends happen to the bank nifty, it generally retraces around 38.2-50% before resuming the bullish momentum. So I think this zone of 37,000 to 36,400-36,500 will play a huge support zone for bulls over here.

Second, if I look at the 100 days exponential moving average, which is places again at around 37,000-36,991, I detected a support RSI, if you look at the lower panel over here, it is quite interesting. We have seen multiple highs ben broken out on the RSI. Again this time if you look at the rally which happened from the start of a new year where it moved very much higher from 34,000 to 38,850 levels, the RSI has seen a huge uptick and now they're retest has happened on the RSI.

Again I believe the strength is very, very strong into the bank nifty over the nifty looking at the momentum so I believe just we are into entering into the budget. I believe that bank nifty is well placed for a bullish momentum in the budget and anything in the budget could surprise, then bank nifty could be the one which could rally.

History is repeating. I think history might repat, in 2021, what we have seen. Volatility could be more. Slightly more looking at the recent week which are witnessing into the expiry where market have seen as a down tick in the last three four trading sessions. So I believe one should definitely look at when the recovery happens or the reversal happens, bank nifty could be the one which could take the lead. That's the take you should look into when we are stepping into the union budget.

Signing off, Brijesh Bhatia.

Warm regards,

Brijesh Bhatia
Brijesh Bhatia
Research Analyst, Fast Profit Report
Equitymaster Agora Research Private Limited (Research Analyst)

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