Analysts bullish on PSU banks despite sudden profit booking; index cracks 3%

The profit booking was seen mainly after Federal Bank released its numbers during market hours today. The private sector bank reported a standalone net profit of Rs 854 crore for the quarter ended June on Thursday, surging 42 percent compared to the company's Rs 601 crore-Q1 profit of the previous year.

Sequentially, the profit was down 5 percent from Rs 903 crore reported in the preceding March quarter.

After a spectacular rally in 2022, the PSU bank index has underperformed benchmarks in this calendar year so far. The Nifty PSU Bank index has gained only 0.06 percent so far this year as against a 6.59 percent jump in benchmark Nifty.

In the last one year, the index has rallied 63.73 percent versus a 21.53 percent rise in equity benchmark Nifty.

"The index after witnessing some consolidation finding resistance near 4500 zone gave in breaching the 4400 zone with a big bearish candle which has turned the bias little bit cautious to anticipate for further slide in the coming days," said Vaishali Parekh, Vice President - Technical Research at Prabhudas Lilladher.

"The near-term support zone lies near 4250 zone where one need to check whether the index sustains and manages to give a pullback. On the upside, a clear breach above 4500 levels is required to trigger for fresh breakout and carry on the momentum still further ahead," Parekh added.

Following a robust upward movement, the index is currently encountering resistance, signaling a potential pause or reversal in its bullish trajectory. "Our analysis suggests that profit booking is likely, with a projected retracement to approximately 4076 levels, which holds significant importance as a crucial support level," said Kunal N Kamble, Senior Technical Research Analyst at Bonanza Portfolio.

"The momentum indicator RSI indicates a positive market sentiment, reinforcing the possibility of the bullish trend continuing despite the temporary resistance. Moreover, the index has consistently adhered to the 40-day Exponential Moving Average (EMA), indicating a positive overall trend. In the past, the Baseline has proven to be a reliable support level for the Index, further emphasizing its significance," Kamble said.

Further, the analyst said that it is crucial for traders and investors to closely monitor any price action around this level, as it can potentially influence market dynamics and provide lucrative trading opportunities.

"Based on our technical analysis, we recommend a strategic Buy on Dip approach for the PSU BANK Index around the 4076 level, as it is expected to serve as a crucial support zone. Additionally, our projections suggest that the index may potentially reach the 4995 level in its ongoing upward movement," he added.