Nifty PSU Bank has been the worst performer in the quarter gone by and all 12 stocks slipped into the red. Five stocks have seen double digit declines of up to 12% viz. Bank of Baroda (BoB), Union Bank of India (BoI), Uco Bank, Punjab National Bank (PNB) and Indian Overseas Bank (IOB).
Others like Bank of India, Bank of Maharashtra, State Bank of India (SBI), Punjab & Sind Bank (PSB), Canara Bank, Central Bank of India and Indian Bank fell between 9% and 3%.
On the month-on-month basis, Nifty PSU banks losses mounted to 3.3% with PSB as the biggest loser followed by PNB and BoI which fell by 8%, 7.5% and 7%, respectively. The rest fell between 6.7% and 1.4%.
October seasonality
In the last 10 years till 2023, Nifty PSU Bank index has delivered positive returns in October on seven occasions with highest returns of 24% in 2017 followed by 16% in 2022 and 14% in 2021. Other times when it ended positive in October are 2014 (11%), 2016 (1), 2018 (8%) and 2019 (9.2%). It fell in 2023, 2020 and 2015 when the index slipped by 6.2%, 1.3% and 2.2%.
If October seasonality is any indicator to rely upon, there is a 70% probability for PSU bank stocks to end in the green, brokerage firm JM Financial said in a note. Decoding the charts, expert Sagar Doshi, who is Senior Vice President-Research at Nuvama Professional Clients Group said that any more immediate correction in Nifty PSU Bank appears unlikely and a breakout of downward sloping trendline above 6,900 could trigger a short covering rally on the index.
“Given the seasonality and repeated support this index has been taking, an upside breakout is likely to unfold in the coming days for the current month,” Doshi said.
He places support for Nifty PSU Bank near 6,500, arguing that this level has been acting as an active demand zone from the start of this calendar year.
What charts tell?
Nifty PSU Bank index has been trading below its 200 DMA since the past 4 weeks and this has been the first time in the past 2.5 years that the index has broken and stayed below the 200 DMA. However it missed the downward traction/follow up after the breakdown, Doshi pointed out as he views this “miss” as a positive occurrence.
Seasonality analysis is another facet of analysing the mood of this market and average returns of previous 10 years stand at 7.3%, the Nuvama analyst said.
Private banks’ performance
In contrast, private banks at an index level, have had a better strike rate with 9 positive closing in the last 10 years and the only exception was 2023 when the Nifty Private Bank had declined by 5%.
Stocks to buy
Doshi’s top picks to buy are Canara Bank, BoB and SBI which he said are positioned strongly to lead the upcoming rally in this space.
Axis Securities has a buy rating for BoB for a price target of Rs 275 which implies a 10% upside from the current market price of Rs 249. It expects the lender to deliver a steady state RoA/RoE of 1.1%/15-17% over FY25-27E.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
