PSU Bank Stocks Are Rising. What Next?

'Fraud' is a common word when it comes to public sector banks (PSBs). This is because scams became a motif in their functioning.

The examples of Harshad Mehta, Vijay Mallya, Nirav Modi, Mehul Choksi, and many more brought the Indian banking system to its knees.

Even after all these scams, the PSU Bank Index was a leading sectorial index between 2004 and 2010, gaining over 500%.

From the high of 2010, the index corrected around 80% in the pandemic low.

But what do the charts say now?

The Multi-Year Trendline Breakout

Since the low of 1,078 in 2020, the index has rallied over 250% in the last 30 months.

PSU Bank Index Weekly Chart

 

On the weekly chart of the PSU Bank index above, the break of the 12 years falling trend and the bearish structure as per Dow Theory in the form of a lower high - lower low structure, ended in November 2022.

The index has broken out of the falling trendline indicating an end to the 12-year-long bearish trend.

The higher high-higher low pattern since the low of 2020 is the sign of a bullish trend as per Dow theory. The icing on the cake is the breakout from the horizontal trendline on the chart.

In the last few months, the PSU banks have been on the mind of traders and investors due to their outperformance against the private banks.

PSU Bank Index vs Private Bank Index

 

Since June 2022, the PSU Bank index has rallied 70% and outperformed the Private Bank index which rallied 30%.

Over the last few weeks, this exceptional outperformance has attracted investors and traders. Every dip in these stocks is aggressively accumulated.

In July 2022, when no one was interested in buying PSU Bank stocks, I recorded the following video.

Since the video, the index has rallied over 40%.

With the kind of outperformance shown by PSU Bank stocks, I reiterated my view on the index in another video - Diwali Picks for Samvat 2079.

Considering the constituents of stocks in the index, outperformance of the stocks with negligible weights in the index can be seen.

	CMP (Rs)	November so far (%)	1 Month (%)
Bank Of Baroda	161.9	10%	13%
Bank Of India	77.1	25%	53%
Bank Of Maharashtra	28.8	42%	45%
Canara Bank	314.3	8%	17%
Central Bank Of India	25.8	27%	30%
Indian Bank	268.4	8%	19%
Indian Overseas Bank	23.5	25%	32%
Punjab & Sind Bank	21.3	31%	34%
Punjab National Bank	47.6	19%	17%
State Bank Of India	598.1	4%	7%
UCO Bank	18.7	41%	51%
Union Bank Of India	76.2	45%	55%

Source: Equitymaster

I believe, this is the beginning of a new journey for the PSU Banks and it may last for the next 5-8 years. PSU bank stocks may even become best stocks for the next 10 years. Only time will tell.

At present, the PSU Bank index is trading up 2.3% at 3,120. Among bank stocks, UCO Bank and Yes Bank are the top gainers today.

I'll share more on his trend on my Telegram group. If you're interested in being part of my charting journey as I share how to create wealth from profitable trade setups, join my telegram channel - Fast Profits Daily.

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