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Technical trends: Is it a good time to buy public sector banks?

Illustration: Ajay Mohanty
Public sector banks (PSBs) have been in focus over the past few trading sessions, after the government unveiled a mega plan to merge 10 public sector banks into four. The consolidation exercise will bring down the number of nationalised public sector banks to 12, from 27 in 2017.

Punjab National Bank (PNB) will take into Oriental Bank of Commerce and United Bank of India to form the nation's second-largest lender; Syndicate Bank will merge into Canara Bank; Union Bank of India will amalgamate with Andhra Bank and Corporation Bank; and Indian Bank will absorb Allahabad Bank.

Since the announcement on August 30 made post market hours, stocks of the above-mentioned banks have seen a sharp slide at the bourses.

At the fundamental level, while analysts say the merger is a step in the right direction and will help banks cut down on overlapping operations, they suggest the integration process will be time consuming.

Here's how key PBSs, where there is a clear trend emerging, look on the technical charts:

NIFTY PSU BANK INDEX:  The weekly formation is showing a breakdown of a bigger consolidation that the index was in. Such a scenario not just disrupts the upside sentiment, but provides opportunities for shorting on every possible rise. The index has been trading in the range of 2,600 to 3,400 since the last one year, which has now got broken. Key technical indicators – the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) – are also not showing signs of a possible reversal. The index can head towards 2,250 and then 2,100 levels going ahead.  CLICK HERE FOR THE CHART

Punjab National Bank (PNB): The outlook for this counter also looks grim and investors need to be cautious in case the stock moves up. On charts, PNB has failed to establish the possibility of a major upswing from here on. Moving averages have formed a ‘Death Cross’ pattern. The gap-down closes over the past few sessions have also not been filled. That apart, technical indicators like the RSI and MACD trade with negative crossovers and high volumes on negative candles. The stock needs to cross Rs 65 on good volume to regain positive momentum. CLICK HERE FOR THE CHART

Allahabad Bank (ALBK): Although the counter is showing some revival after the recent low of Rs 30, a further up move can only happen if it crosses its resistance level of Rs 36 on good volume. Failure to conquer this may result in more weakness, going ahead. After Rs 36, the next resistance for Allahabad Bank is placed at Rs 40.  That said, a consistent fall in trading volume is a concern.  CLICK HERE FOR THE CHART

Canara Bank (CANBK): The stock hit its 52-week low of Rs 190.6 on Wednesday and this has increased the chances of a further fall in the days ahead. Rs 200 was a significant support for the stock, which was held from the past three years. A breach on the downside now can take it down further. The counter closed with strong negative candles with above average volumes in the last two sessions. Hence, any move to regain strength will be met with resistance, charts show. A level of Rs 175 going ahead cannot be ruled out. CLICK HERE FOR THE CHART

Corporation Bank (CORPBANK): After experiencing a steep fall from around Rs 28 to Rs 17 now, the stock is consolidating now, daily charts suggest.  All technical indicators have turned extremely negative. One should avoid going long till the counter trades below Rs 21, as every reversal may witness sell-off, daily charts suggest. CLICK HERE FOR THE CHART

Syndicate Bank (SYNDIBANK): The technical indicators, such as the RSI and MACD, indicate a positive crossover and suggest a possible rise in the days ahead. Till the stock does not cross Rs 36 on good volume, one should not have high hope. On the downside, immediate support comes at Rs 30. CLICK HERE FOR THE CHART


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