Banking – End of road soon

Bank Nifty has rallied staggering 226% from its bottom of 3,330 touched in March 2009. The outperformance to Nifty has been substantial at 113%. Improvement in market sentiment followed by robust earnings has driven a sharp upswing in banking stocks both PSU and private.

In the past one month, (from July 16^th), CNX Bank Nifty index has delivered returns of ~9% with majority of PSU banks scaling to all-time peak. Nifty appears to be stalling around resistance levels of 5,450-5,550 and the Bank Nifty, which has ~22% weightage, could see some profit booking.

We have conducted a study of 15 banking stocks (large and medium size banks) and Bank Nifty to arrive at our medium-term outlook.

Ideally, as per Technical analysis, whenever, a stock trades at its all time high, it is considered to a bullish signal. However, taking into consideration advanced technical parameters like fibonacci extension, fibonacci retracement and RSI, our study found that 8 out of 15 stocks covered in this report have entered into an overbought zone. Any unwinding pressure at these levels could lead to sharp corrections in them. All chart studies have been carried on a weekly and monthly basis to get a better perspective of the medium-term outlook.

We have categorized banks covered into three buckets based on technical indicators as follows