PSU Banks vs Private Banks: Next Leg of the Bull Market

Hello viewers. Welcome to the Fast Profits Daily. Myself, Brijesh Bhatia.

Well, Nifty has been very, very volatile in the last week where we saw 16,800 last Monday when we gapped down. Then we saw back toward 17,500. This is all on the back of news that Russia will attack Ukraine, yes or no? There are various news. The troops are going ahead for war. Their troops are coming back.

But the volatility has been very, very severe and it's not greatest cup of tea keeping the momentum checked with the plus and minus in the recent scenario. Well the stock specific action has been there but looking at the traders' sentiment, I think this is a no trading zone for a trader.

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I have posted the chart of Nifty as well in my telegram group. In case, you are not following me on telegram the link is there in the description below. You can follow the link to my telegram channel and you can check the charts where I post regular updates, what the technical structure looks on Nifty or some of the sectoral indices if there is something interesting.

Coming on to today's video. If the market recovers from here, should you continue to hold PSU Banks or should you shift to private banks?

Well from start of 2021, I would say the Q4 of 2020, PSUs have been very, very strongly outperforming against private bank index, thanks to Bank of Baroda, thanks to the Canara Bank, thanks to the SBI, which has been strongly outperforming in the current scenario.

Will, the PSU bank rally continue or should you shift the focus on to the private banks? So first lt's look at the PSU bank index what the charts are saying.

 

If you look at the chart right from 2017 highs, if I just draw the trend line, we have seen a break out of the PSU bank index. But in the recent scenario, if you look at the red lines, the red lines, the upper resistance has been very, very strong for the PSU bank index.

Though, they have been above the 200 days average for quite some time now but if you look at the structure, I think they are trading at the resistance zone and I think the PSU bank index might stay in a range for quite some time in the coming weeks.

 

At the same time, if I look at the private bank index now, if you look at the index now, since 2016, it has always respected 200 days average. 2020 was the black swan event. Though the fall was very, very severe, but the recovery was very, very sharp as well. So a V-shaped recovery, back above the 200 days average and every time it tests around the 200 days average, it goes 3-5% plus and minus and then comes back with very, very stronger bullish trend.

So I think if I look at the green line over here, it has been consolidating around the 200 days average and the resistance line, the couple of red lines, the lower red line is the previous high which has been taking support.

Now, if you look at the upper red line, it is slightly placed around 19,800-19,900. So keeping a psychological base of 20,000 at current point of time, I think above 20,000, this private bank index will be one of the strongest outperformer index, sectoral index, I think in the coming weeks looking into the banking space.

What could lead?

The stock specific action could remain very, very interesting. ICICI Bank is well placed. IndusInd Bank is well placed. Axis Bank is slightly outperforming into the private bank space. So this are the stocks I think could see a huge run up supporting the private bank index over the PSU banks.

One thing has struck me why I think PSUs might take a pause over the private banks. Look at this chart over here. The ratio chart of the PSU bank over the private banks.

 

Now, if you look at the structure over here, this is start since 2009 and this is a weekly scale. If you look at the green line, this is the 200 weekly moving average. Since then, since 2009 it has never moved above the 200 days moving average. This is the first time I think that PSU banks will take a pause.

Again if you look at the lower panel over here, since 2020, Q4 2020, PSUs have been outperforming the private banks, but at current point of time, the PSUs might take a pause for probably 6 to 8 weeks, where private banks could come back very, very strong. This is the reason I think that one should focus from PSU banks, from a trading perspective, towards the private banks.

If you look at the RSI on the lower panel of the same chart, it has been resisting around the oversold territory of 70 and at a multiple resistance sign, which is slightly making me cautious that this ratio chart indicates that private banks are coming back very, very strongly over the PSUs.

So I think from a trading per se switch onto the private banks over the PSUs. Well, investment-wise still believe SBI in the PSUs, could be the one which could huge upside, but from trading per se and from 6 to 8 weeks momentum, I think private banks should be very, very good bet over the PSUs.

Again keep in mind that the private bank index should cross over 20,000 levels, keeping a resistance from 19,800 and a psychological level of 20,000. I think once 20,000 is taken out, we could see a fast and furious rally coming into the private bank index and one should definitely focus on the private banks over the PSU banks.

Signing off, Brijesh Bhatia.