Ratio Trade: ICICI Bank (ICICIBC) to outperform Kotak Mahindra Bank (KMB)
Current Ratio: 0.6321
Ratio Target: 0.6953
Ratio Stop-loss: Below 0.6005 levels on a closing basis.
Rationale
* In last one year, ICICIBC has moved up by around 12% while KMB has increased by around 11%, resulting into a positive normalised return spread of around 1%.
* Earlier, the pair has shown convergence at the spread of around -7% to 2% on multiple occasions. We expect a similar occurrence.
* The pair has already started converging in favour of ICICIBC as indicated by an increase in spread to 1% from a low of -2%.
* On a 1-year data window, the normalized return spread is trading at 0.8 standard deviation below the mean levels of 6.808. It is currently at its 20 percentiles.
* Quarter to date, ICICIBC has declined by ~5% while KMB has moved up by ~7%.
* Technically, ICICIBC has started bouncing up from its key support zone and is now above its 8-day EMA and 200-day EMA. KMB has a large gap area in the range of 1805-1866 levels which has a probability to get filled.
Please refer disclaimer at https://www.jmfl.com/disclaimer
SEBI Registration Number is INM000010361
