Underweight and Bearish Stance on Private Financials
The Nifty Pvt bank chart has topped out on 16132 on 28-01-2019. The Pvt Bank sectoral index made a bottom at 13616 on 8-10-18. It rallied to 14636 on 17-10-18 and then again fell to 13735 on 25-10-18. This is a case of classic double bottom formations on charts with index testing it’s previous low again within the next 10 days. The Pvt Banks have significant weights in NIFTY and any downward pressure will add to a significant negative momentum to NIFTY.
Big Cracks in Banking Leaders Stocks: The leaders of Pvt. Banks and NBFCs esp. HDFC Bank, HDFC Ltd, Bajaj Finance, IndusInd Bank, Yes Bank, Bajaj Finserv, Shriram Transport Finance and many more are all weak technically There is only mild support from some private sector corporate Banks esp ICICI and Axis Bank. These are the only 2 stocks which are making new highs and are being accumulated by big Institutional Buyers.
Outperformance started in Pvt Bank Nifty in OCT 18: The index started its intermediate bull market with index crossing over short term moving averages. The Index also started to make the higher top and higher bottom formations. The important breakout point was 14636 which was taken away on 13-11-2018. The rally which started on 29-10-2018 had lasted for almost 3 months till 29-01-2019. Normally any short term trends last for 3-4 months and stocks /sectors usually fall to compensate for crucial retracements.
Resumption of Downtrend in Pvt Bank Nifty: Now the private bank nifty has fallen below the levels of 50 D.M.A.The current levels are below its 10 DMA and 20 DMA showing extreme weakness and clearly signaling the resumption of the downtrend. This is called a classic double top formation.
The rally was of 2000 points approx ( 15656-13616) in the period from 29-10-18 till 25-01-2019. The index has fallen almost 500 points from the intermediate top and most of the key constituents are showing weakness and stagnation in charts. The index can easily test 14600 and once it breaches this level, we may test the previous lows of 13650 approx.
Technical Indicators Showing Weakness: The RSI has hit a new low after being in a bull market for 3 months. The MACD has given negative cross over which confirms that even the faster moving averages are extremely weak signaling.
Near Term Triggers for Banking Stocks: There are no near term triggers which are positive in nature. The recently reported earnings clearly show that even though the liquidity situations has improved only for stronger NBFC. The weaker NBFC have some serious issues of asset liability mismatch and earnings of NBFC will be revised downwards.
Also, there is a strong uncertainty hanging over the stocks because of the govt. has tinkered with fiscal position by announcing some big schemes for farmers which may impact bond yields. The markets are continuously fearing some big corporates defaulting due to tight liquidity situations.
In nutshell, we are extremely negative and have underweight to a bearish stance on Pvt banks, Pvt financials, an NBFC. We advise to book profits in your profitable trades or else exit all your long positions. This is the time to short financials and protects portfolio gains if any. We also believe that one can buy options to hedge against any severe fluctuations.
Consult Financial Advisor: Before taking any trades or positions, always consult your financial advisor. All investments are subject to market risk and we as individuals just focus on returns while forgetting the risk part. Stay cautious, stay alert and Buy good quality stocks in a staggered manner.