The Nifty PSU Bank index is currently trading at the level of 5190, just 186 points below its all-time high of 5375.85, reached in November 2010. Afterwards, the index entered a 12-year downtrend during which it formed a downward channel. However, in November 2022, it broke out of this channel pattern and four weeks ago, it also broke out of a 38-week cup pattern, coinciding with a shift in the RSI range.
Over the past 41 weeks, the index has nearly retraced 100% of the downtrend and is outperforming the broader market. It currently resides in the leading quadrant on Relative Rotation Graphs, indicating stronger momentum and relative strength. During these 41 weeks, the index has rallied by over 390%.
The index is currently 23.81% above the 40-week average and 9.48% above the 10-week average, with all long-term averages trending upward. The weekly MACD shows strong momentum and following the cup pattern breakout, the past three weeks have witnessed an impulsive rally. However, some consolidation may occur above the breakout level of 4600-4700, making it an interesting support level to watch.
Turning to fundamental developments, there are signs of improved profitability in recent quarters, attributed to factors such as enhanced asset quality, reduced NPAs, and government support measures, including capital infusion. Asset quality improved through a combination of loan restructuring, write-offs, and recoveries, leading to a decline in the gross NPA ratio of PSBs from 13.6% in March 2018 to 7.3% in March 2023. Credit growth has also been on the rise in recent quarters, while the capital adequacy ratio improved from 12.4% in March 2018 to 16.0% in March 2023.
In summary, the fundamental outlook for the PSU Bank Index is positive, demonstrating both strong fundamentals and technical strength. It’s advisable to stay on the momentum. The immediate short-term target lies at the previous high of 5375.85, with the potential to reach the level of 6862 in the long term, spanning 18-24 months.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.