NIFTY VS. BANKNIFTY RATIO

May 25, 2022

Out of curiosity, I plotted Monthly ratio of Nifty over BankNifty. You can clearly see that this ratio is confined in a downward sloping channel over the last several years. When the ratio goes up, it means Nifty is outperforming BankNifty. Vice Versa, when the ratio goes down, it means BankNifty is outperforming Nifty. For the past 5-6 months this ratio is hovering near the top of the channel but seems to be cracking to go towards the lower end of the channel.

This indicates that Nifty is about to dip much more compared to BankNifty. As a validation, ROC has plunged below the zero line into negative territory.

Correspondingly, CNX Metal and IT indices are also dipping from their recent highs and look ready to plunge more. If that happens (along with other sectoral moves) then this ratio of NF/BNF is set to plunge lower in the coming months.

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Jul 28, 2022

Note

Guess this view has become popular. I saw some media analysts posting it on their twitter accounts as their own thing. Regardless, I am glad that the data is playing out just as expected. BNF is outperforming NF as expected and the trend should continue towards the channel bottom.

So for this to happen a major share(s) in NF has to tank and a major share in BNF has to rocket. I see RIL demerger coming into 3/4 entities (O2C, Jio, Retail, Media etc) with RIL retaining only the O2C biz so its weight should reduce considerably in NF pulling it down if only temporarily.

OTOH, HDFCBANK merger with HDFC should really increase its weight in BNF pulling it way up. Together these two events should pull the graph above down towards the channel bottom.

Of course, this is just my way of explaining the chart movement. But it'll be interesting to see how it all unfolds.

Aug 1, 2024

Trade active

Sharing my latest finding on this idea. The ratio has definitely broken out of the upper channel and is struggling to rise above 200 SMA Monthly level of 0.49 currently. This means that Nifty has risen much faster than BankNifty over the past over two years (since May22 when the idea was originally posted) to break out of the channel top.

For the ratio to cross over 200 SMA, Nifty will have to grow faster, or BankNifty has to fall faster, or both! Since banks already dominate the Nifty weightage, I expect another sector (Pharma/IT/FMCG?) to take the lead in Nifty. Keep tuned...