Sunday, December 12, 2010

Chart Patterns of 10 Banking Sector stocks

The tightly regulated Indian banking sector has been one of the better performers during the bull rally. It forms one of the strong pillars that supports the India growth story. The competition and service standards of private sector banks have helped to improve the outlook of PSU banks towards customers from ‘doing a favour’ mode to ‘providing a service’ mode.

Still, there is plenty of room for improvement – both in customer service standards as well as in doing due diligence before handing out loans to corporates. The bribe-for-loans scam by some realty companies that was unearthed recently came as no big surprise to the Indian public. Many have run pillar to post to get a loan sanctioned before bowing to the malaise of greasing palms.

Many banks, particularly the ones linked with sanctioning loans to real estate and microfinance companies, have taken it on the chin during the ongoing correction in the Indian stock markets. Here are the one year bar chart patterns of 10 stocks from the banking sector – 5 of them from the PSU group and 5 from the private sector group. The ones that haven’t corrected a lot are the ones that are likely to lead the next rally in the banking sector.

Punjab National Bank

Punjab National Bank_Dec1010

The second largest PSU bank had been in a bull market till it hit 1400 in Nov ‘10 and started to correct. A high volume fall to the 200 day EMA was followed by an upward bounce to the falling 20 day and 50 day EMAs. The stock has started falling again and is trading between the 100 day and 200 day EMAs. The technical indicators are looking weak. Another test, and a possible break, of the 200 day EMA is likely.

Bank of Baroda

Bank of Baroda_Dec1010

This chart pattern looks the strongest of the PSU bunch. The stock is consolidating around the 100 day EMA. The technical indicators don’t hold out much bullish hope. A drop to the 200 day EMA may be on the cards.

Central Bank

Central Bank_Dec1010

The chart pattern of Central Bank remained in a sideways consolidation for 6 months, before breaking upwards on good volumes. It formed a bearish double-top after reaching the 250 mark and has corrected sharply. The stock had back-to-back closes below the 200 day EMA and has wiped out all the gains it made in the recent break out.

Corporation Bank

Corporation Bank_Dec1010

The stock had been in a bull market till it hit the peak of 814 in Nov ‘10. The subsequent correction seems to have ended with a sharp intra-day drop below the 200 day EMA, following which it managed to close above the long-term moving average and remains technically in a bull market. The technical indicators are hinting that the correction may not be over yet.

Indian Overseas Bank

Indian Overseas Bank_Dec1010

The chart pattern traded in a range for seven months before breaking upwards on good volumes in Aug ‘10. After twice facing resistance from the 180 level, the stock is seeking support from its 200 day EMA. Any recovery may be short-lived and the stock is likely to correct some more.


HDFC Bank_Dec1010

This is a favourite stock of the FIIs, and the chart pattern shows why. The stock is in a bull market, and the recent correction looks more like a sideways consolidation. However, a test of support from the 200 day EMA seems imminent.


ICICI Bank_Dec1010

This stock is another FII favourite, but is more volatile than the HDFC Bank stock. Though the correction has been steeper, the stock hasn’t dropped to the 200 day EMA yet.

Axis Bank

Axis Bank_Dec1010

The Axis Bank stock had an excellent bull run till it hit its peak in Oct ‘10. The correction has been just as strong, and the stock is struggling to move above its 200 day EMA.

Kotak Mahindra Bank

Kotak Mahindra Bank_Dec1010

The Kotak Mahindra stock traded in a range of 85 points for 8 months. It finally broke upwards after the stock split and reached the 530 mark in Oct ‘10. The correction has not yet tested the support from the 200 day EMA, but may do so soon.

Yes Bank

Yes Bank_Dec1010

FIIs hold majority stakes in Yes Bank, which had a spectacular run from a low of 41 in Mar ‘09 to a high of 388 in Nov ‘10 – gaining 850% in 20 months. The correction has been sharp, and the stock has closed three days in a row below its 200 day EMA. The correction may not be over yet.

Bottomline? All 10 banking sector stocks are undergoing correction. Bank of Baroda, ICICI Bank and Kotak Mahindra Bank have not suffered as much from the bear attack. The corrections may continue a little longer. Investors can wait a bit or buy in small lots.


Niteen S Dharmawat said...

I am a fundamental side of the world and admit that I lack knowledge of Technical analysis but your write ups are simply superb and make me believe that one of the best in India in terms of simplicity to explain the analysis. Keep up the good job.

You have mentioned about double top somewhere of one of the banks and I heard that Sensex also had double topped at 21k and that is the reason it’s falling. So what could be pessimistic and optimistic levels (on the lower side) with probability (if TA permits) of Sensex retracing to go beyond 21k?

Subhankar said...

Appreciate your comments, Niteen.

One of the main reasons for writing this blog is to demystify technical analysis for small investors. If more readers like you get interested to study the subject, my efforts will be well worth it.

The Sensex did react after reaching the 2008 top of 21000. That doesn't necessarily make it a double-top. A double-top will get confirmed only if the Sensex falls below the in-between low of 7700. That seems very unlikely.

As per an earlier post analysing a long-term Sensex chart, I had mentioned a minimum up side target of 22000. The Sensex should get there in the near-term (i.e. 3-4 months). On the down side, the 18000-18500 zone has good support. Below that, the Sensex can drop to 16000.