The Bank Nifty index has been on a downward trending channel since December 2024. Though there were periods of persistent bearish signals across multiple technical parameters. However, since early February 2025, the Bank Nifty index has declined over 5%. Amid this decline market data highlights an interesting divergence for sector investors between PSU and private banking stocks. Revealing both challenges and opportunities in this period of weakness.
Bank Nifty remains a concern for the bulls despite the index trading below important moving averages, signalling bearish indicators. In the last 17 trading sessions, 16 times the index has failed to close above the previous day's high, demonstrating the domination of bears over bulls in the current market cycle.
The price action defines a trading range that market participants must closely monitor. Current resistance levels form a formidable barrier at 48,400 (coinciding with 5-day EMA), followed by 48,588 and 48,801. While on the support side, the index has bounced repeatedly from the 47,800-47,840 range.
The 37.76 RSI reveals that the index is approaching oversold territory. However, it has not reached the extreme levels that typically precede major reversals. Additionally, the support at the lower Bollinger Band provides some technical foundation to Bank Nifty for potential short-covering rallies.
PSU banks have shown resilience in recent sessions, with Canara Bank, Bank of Baroda, and Punjab National Bank emerging as top gainers. While Private sector banks faced persistent selling pressure. Heavyweights like HDFC Bank and Kotak Mahindra Bank are dragging down the overall index performance. This divergence suggests a sector rotation performance within banking stocks rather than a uniform weakness across all financial institutions.
Surprisingly, the NBFCs have outperformed the Bank Nifty stocks, with FinNifty showing relative strength to other bank stocks. The rotation between financial sub-sectors only highlights the selective nature of the current market.
Several factors contribute to the ongoing pressure on banking stocks:
The 0.90 Put-call ratio (PCR) for Bank Nifty suggests neutral market sentiment. However, the buildup in positions of open interest patterns at lower strike prices signals a potential downside support level.
The market is trapped between the late shorts and bearish positions. When the index rejects the intraday low with a long lower wick candle pattern, traders are caught in an off-guard position. They may have to exit their positions by buying, if the prices keep rising, which could push the prices even higher.
The outlook for bank Nifty remains cautiously bearish, with potential technical relief rallies. The index must demonstrate strength to sustain an uptrend, by closing above the previous day's high and reclaiming the 5-day EMA.
The crucial strong support zone is between 47,800-48,000 for the index. However, a break below these levels could accelerate selling between 47,400-46,600. If the movement sustains and reaches 48,400, it could trigger short-covering between 48,900-49,000.
PSU banks may outperform private sector banks in the near term. Private Banks have more weak indexes than PSU banks. Traders should be selective with PSU bank stock, as they offer selective opportunities.
Pressures from technical weakness, selective selling in private banks and market volatility affect the Bank's nifty stocks in early 2025. For traders and investors, the current market outlook presents cautious but optimistic short-term gains. The medium-term trend remains bearish until a reversal signal appears. Even though the index remains in a range of strong support of 47,800 and resistance at 48,600, risk management must remain paramount. The banking sector is navigating a challenging technical environment.