Indian stock markets continued to scale new highs today with Sensex surging over 400 points to 59,550 while the broader Nifty approached 17,500 in the opening session. Banking stocks led the gains with Nifty Bank index hitting a new high of 38,045. Among the banking stocks, Kotak Mahindra Bank, Axis Bank  and HDFC Bank led the gains. Analysts have turned bullish on banking stocks after their underperformance this year. 

"In 2021, till date, the Nifty IT has been outperforming the Nifty while Bank Nifty has been underperforming. There is a possibility of change in leadership of the market away from IT, perhaps to banks. The announcement of the 'bad bank' road map and govt guarantees for security receipts to be issued by the NARCL will improve the prospects of banks, going forward," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

The government will guarantee Rs30,600 crore of security receipts issued by its new bad bank, in a fresh attempt to clean up one of the world’s biggest piles of bad loans, Finance Minister Nirmala Sitharaman said on Thursday.  The guarantee will be for a period of five years.

Authorities have identified Rs2 lakh crore of non-performing assets, some Rs90,000 crore will be parked with the bad bank in the first phase, she said. 

“The bad bank idea has been a point of discussion and debate in India for many years. But now the idea has been operationalised with FM Nirmala Sitharaman laying down the road map for the National Asset Reconstruction Company to take off. The NARC that takes over the bad debts of the banks will be given government guarantee to issue Rs30600 cr of security receipts. The banks will get 15% as cash and 85% as security receipts. Since the banks will remove these NPAs from their balance sheets, they can focus on lending activities that can help trigger a fresh round of credit off take that the economy badly needs," said Vijayakumar of Geojit Financial Services. 

Rahul Sharma, co-founder of  Equity99, says Bank Nifty gave a gap-up opening breaking 38000 levels. “We expect some buying in the banking space today especially PSU banks," he said. 

Vishal Wagh, research head of Bonanza Portfolio, expects 40,000 levels on Bank Nifty in coming week.  Bank Nifty may or may not outperform Nifty or other broader index like Nifty midcap or Nifty 500. But it will be at least at a par to the other sectorial or major indices. It has already crossed all time high and now it is ready for target of 39200-40000 in coming few weeks," he said. 

On the overall market, says VK Vijayakumar, even FIIs who were skeptical about valuations and sold heavily in July have come back strongly and are chasing the momentum. 

“FIIs have invested Rs5344 cr in the cash market during the last three days. Nifty has now appreciated by around 10000 points from the March 2020 lows. Even die-hard bulls would not have foreseen such a ferocious rally. Now the bulls are unlikely to let go off their grip on the market till 18000 on the Nifty/ 60000 on Sensex is reached," he said.