PSU banks have had a rough time over the last three months, with their stocks falling as much as 12% from July to September. The Nifty PSU Bank index, which tracks 12 PSU bank stocks, dropped about 7% during this period. However, with October seasonality and current chart patterns, experts believe these banks could turn things around. Here’s what investors should know.
A Tough Quarter for PSU Banks
Nifty PSU Bank was the worst-performing sector last quarter, with all 12 stocks seeing losses. Five banks, including Bank of Baroda (BoB), Union Bank of India, UCO Bank, Punjab National Bank (PNB), and Indian Overseas Bank (IOB), dropped by double digits, up to 12%. Others like Bank of India, Bank of Maharashtra, State Bank of India (SBI), and Canara Bank saw losses between 9% and 3%.
On a month-on-month basis, the Nifty PSU Bank index was down 3.3% in September. Punjab & Sind Bank (PSB) was the biggest loser, down 8%, followed by PNB and Bank of India, which fell 7.5% and 7%, respectively.
October Seasonality Could Change the Game
Historically, October has been a good month for PSU banks. Over the past decade, the Nifty PSU Bank index has ended in positive territory seven times in October, with the best returns coming in 2017 (+24%), 2022 (+16%), and 2021 (+14%). Other strong years include 2014, 2016, 2018, and 2019, with gains ranging from 1% to 11%. However, the index did decline in 2023, 2020, and 2015.
According to a note from brokerage firm JM Financial, there’s a 70% chance that PSU bank stocks will finish October in the green, based on historical patterns.
Sagar Doshi, Senior Vice President of Research at Nuvama Professional Clients Group, believes a short-covering rally could be on the horizon if the index breaks above 6,900. He also noted that Nifty PSU Bank has strong support near the 6,500 level, which has held firm throughout 2023.
What the Charts Say
The Nifty PSU Bank index has been trading below its 200-day moving average (DMA) for the past four weeks. This is the first time in two-and-a-half years that it’s fallen below this key level. However, Doshi sees a silver lining, as the index didn’t continue its downward trend after breaking below the 200 DMA, which he views as a positive sign.
Looking at historical data, the average return for the index in October over the last 10 years is 7.3%, giving investors hope for a rebound this month.
How Private Banks Are Performing
In comparison, private banks have had a stronger track record in October. The Nifty Private Bank index has closed in the green nine times over the past 10 years. The only exception was 2023, when the index fell 5%.
Top Stocks to Buy
For investors looking to take advantage of a potential rally in PSU banks, Doshi’s top picks are Canara Bank, Bank of Baroda, and State Bank of India. Axis Securities also recommends buying BoB, with a price target of Rs 275, offering a potential 10% upside from its current price of Rs 249. Axis Securities expects BoB to maintain strong financial performance through FY25-27.
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