Is Nifty PSU Bank nearing an interim peak? Keep an eye on this pivot point

In a past instance, the Nifty PSU Bank corrected over 23 per cent in the following two months after the index entered overbought zone on the monthly scale.

The Nifty PSU Bank index has witnessed a phenomenal run so far this September quarter. The index of state-run banks has zoomed over 22 per cent when compared with a 3.7 per cent gain on its counter-part Nifty Private Bank index, and a 4.8 per cent rally on the benchmark Nifty50.

Among individual shares, Bank of Maharashtra has zoomed 67 per cent. Central Bank of India and Indian Overseas Bank rallied 56 per cent and 54 per cent, respectively. Bank of India, PNB, IDBI, Indian Bank, PSB, UCO Bank and Union Bank are the other major movers - up in the range of 35 - 45 per cent.  

In the upcoming festive season starting with Ganesh Chaturthi next week, banks are expected to dole out special loan offers to up credit offtake. For instance, Bank of Baroda is targeting a 25 per cent YoY growth in retail loan book, by offering a discount of up to 80 bps on personal loans and home loans starting at 8.4 per cent.

Analysts have maintained a positive outlook on the banking sector amid expectations strong earnings, backed by healthy credit growth.

"The profitability of banks is expected to show healthy growth in absolute terms even if percent terms might be different during FY24 due to expectation of better growth in loan book. The Public Sector Bank (PSBs) are likely to maintain the overall profitability above Rs 1 trillion" analysts at rating agency ICRA said.

Meanwhile, here's what the charts suggest for the Nifty PSU Bank index and select constituents going ahead:

Nifty PSU Bank

Outlook: May be nearing an interim peak

Pivot Point: 4,935

Apart from the recent outperformance, the Nifty PSU Bank index has registered over 4-fold growth in the last three years. The index stood at 1,232 at the end of September 2020. Given this sustained uptrend, select momentum oscillators, namely the RSI (Relative Strength Index) has entered overbought zone on the monthly chart for the second time in this period.

In the past instance, the PSU Bank index saw a price correction of over 23 per cent in the following two months, after the RSI crossed the 70-mark. The RSI on the monthly chart once again stands above the 70-mark, which is the threshold to be considered as overbought.

Thus, there seems a possibility of the PSU Bank index forming an interim high either this or in the following month. As such, one needs to keep an eye on the pivot point which presently stands at 4,935 on the weekly chart.

On the upside, the index may look to rally towards 5,250-5,300 levels; whereas, a dip below 4,935 can trigger an over 10 per cent fall to near about 4,350 levels. CLICK HERE FOR THE CHART

Bank of Baroda

Outlook: Positive

Upside: 9%

The price-to-moving averages action looks fairly favourable for the stock. It has near support around Rs 210, below the next key support is seen at Rs 204. On the upside, the stock can spurt to Rs 225 - 230. CLICK HERE FOR THE CHART

IDBI Bank

Outlook: Positive

Upside: 9%

Earlier this month, IDBI Bank broke above its 20-DMA with strong volumes, since then the stock has managed to hold support at this juncture. The near-term bias is likely to remain positive as long as the stock sustains above Rs 64.70, below which the next significant support is the 50-DMA at Rs 62.

On the longer-term chart, the stock is seen testing resistance at Rs 70 - which is the 200-MMA (Monthly Moving Average). A successful close above the same could easily trigger another 8 - 10 per cent rally, indicating an upside to Rs 75 - 77. CLICK HERE FOR THE CHART

 

Indian Bank

Outlook: Positive

Upside: 6%

The stock has been a relatively under-performer within the PSU Bank space in the last one month. However, select momentum oscillators have now turned favourable for the stock.

The short-term bias for the stock is likely to remain positive as long as the stock sustains above Rs 394. On the upside, the stock can surge to Rs 425 - 430 levels. CLICK HERE FOR THE CHART

Union Bank

Outlook: Positive

Upside: 29%

Union Bank has seen a strong up move (up 2.5 per cent) in Friday's trading session. The stock was seen quoting above its higher-end of the Bollinger Bands on the daily chart. The near-term bias is likely to remain bullish as long as the stock sustains above Rs 95.20.

The long-term chart suggests that the stock can potentially rally to Rs 125, if it clears the hurdle at Rs 102. CLICK HERE FOR THE CHART