How to judge Bank Nifty movement?

Lagging and leading behavior of Bank Nifty can help us to gauge the strength or weakness of the ongoing trend in Nifty.

Feb 21, 2019 04:02 IST IIFL Derivative Desk Raushan Kumar |

Bank Nifty
Bank Nifty is one of the important indices which comprises of the most liquid and large Indian Banking stocks. Lagging and leading behavior of Bank Nifty can help us to gauge the strength or weakness of the ongoing trend in Nifty. In fact, the Bank Nifty Index positively influences almost all the sectoral indices of NSE in both bull and bear phase market movements. Hence, before making any investments in the equity market, the investing and trading community must look into the behavioral pattern of banking sector stocks as they influence the behavior of other sector stocks too and accordingly make trade investments. 
 
The judgment of index movement depends on fundamental and technical factors.
 
Fundamental factors:
  1. Bond Yield Movement: When a country’s macro-economic situation (CPI, GDP, trade balance, and fiscal deficit) deteriorates, bond prices fall and bond yields rise. From stock market investment point of view, rising bond yields erode bank treasury income and vise-versa.
  2. Quarterly result update of top six banks (HDFC Bank, ICICI BankKOTAK Bank, SBIAxis Bank and IndusInd Bank): On a quarterly basis, the parameters like Net interest income, core income from operation, Net interest margin, Asset quality improvement, Capital adequacy ratio and CASA ratio should be considered for these banks in order to understand the overall trend of the market .
 
Technical factors: Derivative Indicator 
  1. High Call and Put option OI (Open Interest) of the index: Positional and short term.
  2. High Call and Put option OI of HDFC Bank, ICICI Bank, KOTAK Bank, SBI and Axis Bank.
  3. Index Future OI and Price movement on weekly and monthly data: Long Buildup, Short Buildup, and Short Covering.
  4. Option activity (weekly and monthly): Short build-up or short covering strike with relation to their price and IV movement.
  5. Cost-of-carry (COC) movement: Premium or discount, high premium means range-bound expectation.
  6. Index IV percentile: above 90 or below 30.
  7. PCR (Put-call Ratio) OI trend: Increasing trend indicate bullishness and vice-a-versa.
  8. VWAP (Volume weighted average price) level: Weekly, monthly and quarterly. 
  9. Options Activity in HDFC Bank, ICICI Bank, KOTAK Bank, SBI and Axis Bank.
  10. Index Ratio trend: Bank Nifty/Nifty. 
  11. EMA (Exponential moving average) Levels: 10,20,50,100 and 200.
  12. Trend Reversal date calculation through "Gann degree".
  13. Elliott wave for Positional trend only. 
  14. Mean +1, 2 and 3 level with help of Fibonacci Extension: Weekly and monthly.
  15. Index HV (Historical volatility) movement. 
 
Remarks: 
We give bullish or bearish strategy recommendation with hedge format on the index by screening above factors, that is why our success ratio (87% in the last 1year) of the FNO strategy is high. It is very essential to have discipline and proper knowledge to succeed in trading. The rewards of trading are high but that depends on the decisions. Trading requires a lot of time and attention in order to understand the markets trends, technical indicators and national and international news regarding capital markets.

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