HDFC Bank Share Price at a Crossroads. Buy, Sell, or Hold?

The stock price of HDFC Bank, one of India's leading financial institutions, has been dragging the Nifty50 index lower.

With a weightage of approximately 13% the stock has witnessed a correction of over 5% this week. This makes it a major drag on the Nifty as well as the Bank Nifty index.

One primary reasons behind the current fall is multiple rating downgrades following the private lender's first investor meeting after its merger with HDFC.

In a recent analyst meeting, the top lender warned that its merger with HDFC would hit key financial metrics including its margins and bad loan ratios.

Experts cited that the impact on non-performing assets (NPAs) was prompted by a sharp rise in bad loans in the HDFC's corporate loan book.

But apart from fundamentals, a lot is also brewing in the stock from a technical perspective.

What Should an Investor Do - Buy, Sell or Hold?

The stock is currently trading at a do-or-die level of Rs 1,500 on the weekly chart, as multiple technical parameters signal a last chance for the bulls.

We will explore various technical patterns and indicators like trendlines, Dow Theory, Time Cycle Theory, and Relative Strength Index (RSI), to ease the decision-making process for investors.

HDFC Bank Weekly Chart

 

1. Rising Trendline

The first technical parameter that demands attention is the rising trendline, which connects the lows of 2020 and 2022.

The trendline indicates a crucial support zone at Rs 1,530, which is the nearest support level for the stock price. However, the psychological level of Rs 1,500 is just 2% away from this trendline support.

It is imperative for the bulls to protect this level to maintain the long-term bullish trend. A breach of Rs 1,500 could signify a significant shift in market sentiment.

2. The Dow Theory

The Dow Theory, a widely respected approach in technical analysis, emphasises the importance of higher highs and higher lows in identifying bullish market structures.

For HDFC Bank, the breach of the previous low at Rs 1,514 could jeopardise the higher high - higher low bullish structure, potentially indicating a reversal as per Dow Theory.

3. Time Cycle Theory

The 45-week time-cycle theory has been particularly accurate in predicting HDFC Bank's stock price momentum.

The recent completion of the 45-week cycle and the subsequent bearish trend witnessed in the stock are significant indicators.

According to this theory, the bearish cycle is expected to continue until the end of July 2024.

As the stock is trading near the critical support level of Rs 1,500, any break below this level could accelerate the bearish momentum, aligning with the predictions of the Time Cycle Theory.

4. Lack of Bullish Strength

The Relative Strength Index (RSI) is a vital oscillator that measures the strength of a stock's momentum.

In the case of HDFC Bank, the 14-week RSI, displayed in the lower panel of the chart, is trending southwards.

This decline in RSI, coupled with a lower high - lower low structure, indicates a weakening bullish momentum. The RSI's downward trajectory suggests that bulls are losing their grip on the stock.

Nail in the Coffin

The recent decline in HDFC Bank's stock price has had a significant impact on the broader market.

This decline has triggered profit booking on D-Street with the Nifty50 index correcting 500 points from its all-time high of Rs 20,222.

Remember, the Nifty50 has underperformed compared to Midcap and Smallcap indices for the past few months.

This underperformance highlights the challenges faced by the broader market and HDFC Bank's struggles have played a role in this scenario.

If the bulls fail to hold the support area and the stock breaches Rs 1,500, then it could lead to a further acceleration of the bearish momentum.

A Ray of Hope

If the bulls manage to hold the support area of Rs 1,500 and the stock reverses northwards taking the Nifty50 along with it, then it could be an opportunity to explore midcap and smallcap stocks in the current dip as they are outperforming.

In conclusion, HDFC Bank is currently trading at a critical juncture, with the Rs 1,500 level serving as a do-or-die support zone.

Multiple technical indicators, including the rising trendline, Dow Theory, Time Cycle Theory, and RSI, all point towards a potential shift in sentiment if this level is breached.

Investors holding HDFC Bank shares should closely monitor the stock's performance and the critical support level of Rs 1,500.

A breach of this level could signal further bearish momentum.

However, if bulls manage to defend this support area and the stock reverses its course, it may present an opportunity.

As always, it's essential for investors to base their decisions on a comprehensive analysis of market conditions, their own financial goals, and risk tolerance.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...