Rally Takes a Pause: NIFTY Bank Drops 400 Points After 6-Day, 11% Surge – What’s Driving the Slowdown

Mumbai 23rd, April- After a sharp rally in recent sessions, banking stocks took a breather on Wednesday, April 23, as investors opted to book profits in the sector’s recent outperformers. The Nifty Bank index, which had surged 10.76% from April 11 to April 22, correcting by 5,407 points, saw a significant pullback on Wednesday, dropping as much as 484 points in intraday trading. At the close, the index was down 417 points, or 0.75%, trading at 55,230.25.

This follows a record close of 55,647.20 in the previous session. Year-to-date, the index has risen over 8.2%, highlighting its continued strong performance despite the pause.

The banking industry has been among the major contributors to the overall market upturn in recent days. Experts indicate that the relative valuation and momentum of the sector have positioned it as a good investment option. With improving liquidity conditions, favorable regulatory actions by the Reserve Bank of India (RBI), and an expanding retail lending business, banking shares are seen to provide robust earnings potential.

The RBI’s revised liquidity coverage ratio (LCR) guidelines have further boosted the sector. By easing the assumptions on deposit outflows for retail and non-financial deposits, the central bank is expected to improve liquidity, reduce pressure on banks, and allow for further deposit rate cuts, which would enhance profit margins. This policy move helped propel the Nifty Bank index to a new record high of 55,961.20 on April 22.

Additionally, the industry has gained popularity among investors due to its relative resilience to global tariff risks, which have been affecting other sectors. The better-than-expected performance of prominent banking institutions such as HDFC Bank and ICICI Bank during the March 2024 quarter further reinforced optimism regarding the sector’s outlook.

So far, 10 of the 12 stocks in the Nifty Bank index were trading lower, with Canara Bank, HDFC Bank, and Axis Bank leading the decline, each falling around 1.6%. However, AU Small Finance Bank experienced a sharp rise, trading almost 6% higher at ₹649.45 per share after announcing encouraging Q4 numbers the previous evening.