Bank Nifty underperforming Nifty – Time to buy or sell?

Bank Nifty has been in the spotlight due to effect of Covid and moratoriums. Due to the reduced  payment capability of borrowers there is potential spike in NPAs in Banks and NBFCs. Both corporates and retail are under pressure and hence Banks are bracing for tough days ahead. How has this affected the charts of Bank Nifty?

The chart below shows the performance of Bank Nifty and Nifty from the day lockdown was announced. Nifty is up around 46% vs Bank Nifty up only 31%. So Bank Nifty has clearly been lagging.

The chart below shows Bank Nifty vs Nifty from 2016 to Jan 2020. Bank Nifty is up around 120% vs 70% for Nifty.

Will Bank Nifty play catchup with Nifty or will it continue to underperform? The charts will give us the answer.

The chart below shows the relative strength chart of Bank Nifty vs Nifty on a point and figure chart type. Point and Figure charts are a style of charting which remove noise as they don’t have any time axis. When the boxes are above the triple moving average it indicates Bank Nifty is outperforming Nifty. When it is below the triple moving averages it shows Bank Nifty is underperforming.

Right now we are clearly below the averages, So let us wait for the boxes to go above the averages and give us a buy. That will be the time we will see a clear smooth trend in Bank Nifty.

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