Happy Diwali, readers!
As we celebrate this festive season, it’s not just the lights and sweets that brighten our days; the stock market also holds opportunities that can illuminate your investment journey.
Public Sector Banks (PSBs) have been a shining star in the Indian financial landscape, delivering strong returns.
With the Nifty PSU Bank Index surging 17% this year (as of October 31, 2024), it's time to consider whether these stocks should be part of your Diwali investment strategy.
With their steady outperformance, PSU banking stocks make a compelling investment choice.
Before we dive deeper into specific stocks, let us analyse the broader Nifty PSU Bank index. It has experienced a dip from its all-time high of 8,053 to a low of 6,188—a drop of over 20%. However, this decline brings the index to a critical support zone on the weekly chart.
The weekly chart reveals that the index has found support at the 62-week exponential moving average (62WEMA) channel, which is formed by the exponential moving average of the past 62 weeks, highs and lows. This week’s bullish momentum and the index surpassing the previous week’s high indicate that bulls are capitalising on this support area.
Moreover, a Bull Sash candlestick pattern has formed this week. If the index closes above last week’s high of 6,734, this pattern will be confirmed, suggesting a potential bullish reversal.
For more such analysis, read Profit Pulse.
Given the favourable technical indicators for the Nifty PSU Bank index, the spotlight is on the three stocks that stand out and could lead the charge.
The State Bank of India is crucial for the index’s performance as the heavyweight in the Nifty PSU Bank, with an approximate 47% weightage.
The stock currently trades between ₹760 and ₹830, receiving support from the 200-day exponential moving average (200DEMA). The 200DEMA serves as a crucial indicator of long-term trend direction. If the stock holds above this level, it signals strength and resilience, while a break below could indicate weakness.
The breakout above the gap resistance of ₹830- ₹846 could propel SBI to new highs, making it a compelling potential candidate for your watchlist.
Bank of Baroda also exhibits a similar range-bound pattern, oscillating between ₹220 and ₹260. Currently hovering around the 200DEMA, the stock appears poised for potential upward movement.
Investors should watch for a breakout above ₹260, which would confirm the bullish momentum and present a potential buying opportunity.
Indian Bank has recently experienced a sharp rally, reversing from the 200DEMA.
The dip below this channel temporarily trapped bears, leading to a short-covering rally that has fuelled bullish sentiment.
Given the recent momentum, Indian Bank is set for a potential rise towards new highs, making it another worthy addition to your watchlist.
As we celebrate Diwali and consider our investment strategies, the PSU banking sector presents a blend of stability and growth potential.
With a strong past performances, positive technical indicators, and promising stock-specific opportunities, adding PSU banks to your Diwali watchlist could illuminate your investment path.
Wishing you and your family a happy Diwali!
Note: The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
As per Sebi guidelines, the writer and his dependents may or may not hold the stocks/commodities/cryptos/any other assets discussed here. However, clients of Definedge may or may not own these securities.
Brijesh Bhatia has over 18 years of experience in India's financial markets as a trader and technical analyst. He has worked with the likes of UTI, Asit C Mehta, and Edelweiss Securities. Presently he is an analyst at Definedge.
Disclosure: The writer and his dependents do not hold the stocks discussed here. However clients of Definedge may or may not own these securities.
