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Wednesday, March 18, 2009

Stock Chart Pattern - State Bank of India

For the mid-week stock chart pattern discussion, I'll take a look at the technicals of the largest bank in India, SBI.

I have a bias against stocks of public sector undertakings (PSUs). At one point of time (and may be even now), PSUs were hot beds of corruption and red tape. Even the military establishments weren't free of this dual menace.

30 years back, when I was first posted at New Delhi, and had to solicit business from the likes of EPI, BHEL, NTPC, ONGC, MES, a well-wisher advised that I should get hold of a 'fixer' if I wanted to crack open government orders.

As a green horn, I had no clue what a 'fixer' was and how to locate one. So I muddled along without making much headway. I believe things have improved a lot since then, but my negative feelings about doing business with PSUs have remained.

I still haven't overcome my bias to make investments in PSUs. After my father passed away ten years ago, I had to run pillar-to-post to recover his pension amount and savings bank account balances from SBI. But there has been a sea change in attitude towards efficiency and customer service at SBI, to the point where it is now near the top of my 'buy list'.

Let us have a look at the 6 months chart pattern of SBI:-


(You can right-click on the image above and open it in a new tab or window for a better view.)

All the three EMAs - 20 day, 50 day and 200 day - are moving downwards with the shorter term averages below the longer term ones. If you don't know what EMAs are and how to 'read' them, please read the blog post: "Why you need to follow the latest trends to become a better investor".

SBI was treading water in a sideways rectangular consolidation chart pattern, just like the Sensex, but broke below the strong support at 1000 level early this month. It is now making an effort to climb back into the rectangular consolidation zone, but is facing resistance from the short-term 20 day EMA.

If it manages to break upwards, it will be resisted strongly at the 1100 level - both by the 50 day EMA, and the down sloping trend line that can be drawn by connecting the two previous tops of 1400 and 1200 (made in Jan '09 and Feb '09 respectively).

Notice how the 20 day EMA moved up and then merged with the 50 day EMA before moving back down again during the Jan '09 up move. The down move was hastened by the news of the Satyam fraud. Due to such chart patterns, technical analysts claim that fundamental analysis is of little use because the stock price reflects the fundamentals. (I don't necessarily agree with such a view.)

The slow stochastics and RSI are trying to emerge from oversold zones (below '20' line) to support the current up ward pull back. But the MACD is still very much in negative zone. The most interesting indicator is the volumes, which are higher on down days and lower on up days. This is not a good sign.

In the Jan '09 attempt to move up, the 200 day EMA provided the resistance. In Feb '09, the 50 day EMA resisted the up move. In Mar '09, even the 20 day EMA is proving a tough barrier. All this points to the conclusion that the down move in SBI isn't over.

Fundamentally, SBI is far less riskier than ICICI Bank and Axis Bank because of its correspondingly lower exposure to derivatives. It is also trading around its book value and is therefore looking like a value buy.

Bottomline? There is strong support on the longer term charts at 900, from where it bounced back recently. Thereafter there is support at the 700-750 level. Those are levels where long term investors can start to nibble at this stock. (Since I don't trade, I'm wary of advising trading calls. May be initiate fresh shorts when this up move gets exhausted around 1050-1100. But please do your home work diligently.)


venu said...

learning from your blog sir

Subhankar said...

Hi Venu

Glad to know my blog is of some help to you. I've tried to distill my experiences gained from different sources into the blog posts. You need to continue your learning - not only by reading my blog posts but also from some of the books I've suggested, and from sources like Business India magazine, BusinessLine newspaper, discussions with other knowledgeable investors, your own investing experiences.

ssharma said...

Subhankarji I prefer to avoid SBI due to its poor customer care service and highly unionized staff.SBI also has huge exposure to real estate and credit card NPAs.Banking is a service industry and if banks any bank for that manner doesnt treat their customer properly they will suffer in the long term.ICICI BANK is a good example which is paying a price for treating its customer like dirt and violating all RBI rules.
Thanks for a very well written and informative article.

Subhankar said...

Appreciate your feedback, Sujoy.

I agree that SBI's customer service isn't the greatest - but they have improved quite a lot over the years, thanks to competition from the ICICIs and HDFCs.

One must learn to differentiate between a company and its stock. For example, I like the shopping ambience at Shopper's Stop - but do not like their stock.

SBI is the largest bank in India and the stock has performed quite well over the years.

At the end of the day, you as an investor must feel comfortable about owning any stock. I give suggestions. You must take your own decisions.

Koottala said...

Dear Subhankar

Please do the same for Canara Bank which is the second biggest PSU Bank

Thanks and Regards

Subhankar said...

Thanks for the suggestion, Mani.

Check out my blog post of Oct 28 '09.