PSU Bank Selloff Creates Buying Opportunity, Says JM Financial

Synopsis : A significant selloff in public sector banks following the 2024 elections is creating an attractive buying opportunity, according to JM Financial. With a steep decline from 52-week highs in banks like UCO, BoB, and PNB, the brokerage expects the PSU Bank index to outperform the broader Nifty going forward. Historical performance, especially in October and November, and strong support levels suggest potential for a rebound in the near future.

The recent decline in PSU bank stocks following the 2024 general election results presents a promising buying opportunity, according to JM Financial. Key players like UCO Bank, Bank of India, Indian Overseas Bank, and Union Bank have seen a significant drop of 25-30% from their 52-week highs. Other public sector banks such as Punjab National Bank (PNB), Central Bank of India, Bank of Baroda (BoB), and Bank of Maharashtra have also experienced declines between 18-22%. In addition, Indian Bank, Canara Bank, and State Bank of India (SBI) fell by 12-15%.

The PSU Bank index dropped 15% from its peak, recently finding support at the 200-day exponential moving average (EMA). This recovery signals potential upward movement in the sector. JM Financial believes this correction offers investors a chance to reassess the PSU bank space, predicting that the PSU Bank index is likely to outperform the Nifty in the coming months.

Historically, the index has performed well in October and November, with an average return of 7% and 6%, respectively, over the last decade. JM Financial also points out that the current ratio of the PSU Bank index relative to the Nifty is trading near long-term support levels, further supporting a positive outlook.

In terms of futures and options (F&O), there has not been a significant increase in cumulative futures open interest, indicating a lack of aggressive sellers. However, certain stocks like PNB and Canara Bank saw an increase in open interest by 15% and 14%, respectively, while SBI registered a 6% increase.

Despite the recent selloff, JM Financial maintains a positive outlook for the PSU bank sector, especially as support levels hold strong at 6,500-6,600, coinciding with historical levels observed earlier in 2024.

Disclaimer : This article is for informational purposes only and should not be taken as financial advice. Investors should perform their due diligence or consult a financial advisor before making investment decisions.