PSU Stocks Flash Warning: CLSA Sees Technical Weakness and Downside Risks for Coal India, Power Finance

Brokerage firm CLSA has pointed out that public sector undertaking (PSU) stocks are showing signs of technical weakness. According to CLSA, the BSE PSU index, compared to the Nifty, has fallen below its 200-day moving average (DMA), which is a long-term indicator of trends. This suggests that PSU stocks may continue to perform poorly. The brokerage sees potential downside risks for stocks like Coal India and Power Finance.

“The BSE PSU sector has dropped from the topping pattern formed between June and September, as well as the uptrend channel of 2023-24,” said CLSA’s technical analysts, including Laurence Balanco, in a note to clients. “Although the 200-DMA is offering support for now, the price action is still limited by resistance from the weakening 50-DMA (currently at 21,422), so the risk remains on the downside.”

The BSE PSU index ended Friday at 20,699, having gained 8.3% over the last six months, compared to the 9.6% rise in the Sensex.

For Coal India, CLSA said that if the stock closes below ₹480, it could drop further to ₹410. Coal India shares closed at ₹493 on Friday. CLSA suggests a stop loss at ₹508 for this trade.

As for Power Finance, CLSA has set a target price of ₹373, indicating a potential fall of over 20% from its Friday closing price of ₹468.75. “The current bounce in Power Finance should be viewed as a good selling opportunity, with the expectation that the stock will decline to the ₹373 level,” said CLSA analysts. They recommend setting a stop loss if the stock closes above its 50-DMA, which is currently at ₹504.