Wednesday, October 28, 2009

Stock Chart Pattern - Canara Bank

The stock chart pattern of Canara Bank seems to indicate that market players were not particularly impressed by the 72% increase in net profits in Q2 '09 (Rs 910 Cr vs. Rs 529 Cr in Q2 '08).

Why? This article reveals the story. The increase in Net interest income (NII) was just above 14%. The increase in net profits was mainly due to huge gains made in treasury and foreign exchange operations - which are not the 'core' business of Canara Bank. If these one-off gains are removed, the comparable net profits would actually be Rs 425 Cr (lower by more than Rs 100 Cr).

The provisions were more than doubled to Rs 500 Cr, of which nearly a half was for Non-performing assets (NPAs). Net NPAs increased by 30%. Yield on advances dropped by 8%. CASA (Current account Savings account) deposit ratio dropped by 7.5%. The only silver lining was the 60% increase in infrastructural lending.

Let us have a look at the one year bar chart pattern of Canara Bank:-


After making a rounding bottom pattern with a low of 144 on Mar 17 '09, the stock more than doubled in value, hitting a high of 297 on May 20 '09. A correction took the stock down to a low of 232 on Jun 16 '09 - retracing nearly 42.5% of the rise and completely filling the 'gap' made on May18 '09.

A rectangular sideways consolidation lasted four months, after which the stock broke upwards on Sep 15 '09 on decent volumes. Another short sideways consolidation ended with a sharp upward breakout on Oct 7 '09 on good volume.

The stock quickly made a new high of 395 on Oct 17 '09 - which was just 26 points short of the bull market high of 421 made on Jan 3 '08. The new high was made on reducing volumes. A bearish rounding top was beginning to form when the Q2 '09 results hit the market.

The stock has fallen three days in a row on big volumes, and got support at the 50 day EMA today. If the support from the 50 day EMA does not hold, look for support at the previous top of 295, and at the 200 day EMA.

The MACD is positive, but has dropped below the signal line. The slow stochastic has entered the oversold zone. Both indicators are reflecting the bearishness on the chart.

Canara Bank is the second largest PSU bank behind State Bank of India, and a regular dividend payer. Readers may know of my aversion to PSU stocks because of government interference in management and lack of transparency - not to speak of shoddy customer service.

I have been a customer of the bank for nearly 30 years - the only reason being the proximity of a branch across the street from where I live. The lack of knowledge of staff members and disrespect for customers are truly unbelievable! So I have a strong bias against the bank.

Bottomline? The stock chart pattern of Canara Bank looks like there might be some more correction. If you like PSU banks, you may want to look at SBI (because it is the leader) or Bank of India. If you are really keen on Canara Bank, wait for it to fall to the 200-230 zone.

(Note: This stock chart pattern analysis was suggested by reader Mani.)


feltra (Raman R) said...

Subhankar ji,

I TOTALLY agree with you on the sentiments about customer (non)service. In this probably Canara Bank is the worst of the PSU banks. Even SBI is better.

Best Regards,

Subhankar said...

Appreciate your comments, Raman.

What is surprising is that the bank has maintained its No. 2 position despite poor customer service. Some one must be doing some thing right. It is just not visible to me!