The Reserve Bank of India increased the Cash Reserve Ratio (CRR) by 50 basis points or 0.5% on Thursday. With this, CRR (the portion of deposit which banks are required to keep with the RBI) becomes 8%. It is estimated that Rs.18,500 crores will be drained away from the banking system. The increase will be in two stages of 25 basis points each. The first hike will be from April 26 and the second from May 10. CRR was previously increased in October 2007. RBI has taken this decision to combat inflation.
The media has been speculating as to how the markets will react on Monday. The opinions are mixed though, some people suggesting that these issues are already factored by the market while some others feel that the hike would not be welcomed at all and the market is likely to react strongly, particularly the banking sector.
The media has been speculating as to how the markets will react on Monday. The opinions are mixed though, some people suggesting that these issues are already factored by the market while some others feel that the hike would not be welcomed at all and the market is likely to react strongly, particularly the banking sector.
Let us now discuss the technical scenario of some banking stocks. There are 19 public sector banks and 18 private sector banks listed at NSE. We'll analyze the important stocks here.
Bank of Baroda:
A bearish head and shoulder pattern has appeared in the daily chart and the stock is struggling to break the resistance. The support trendline on weekly chart was broken during first week of March and currently the stock is trading below it since March 12. The medium term support is at 245.05 and a close below this would make the stock even more bearish.
Bank of Baroda:
A bearish head and shoulder pattern has appeared in the daily chart and the stock is struggling to break the resistance. The support trendline on weekly chart was broken during first week of March and currently the stock is trading below it since March 12. The medium term support is at 245.05 and a close below this would make the stock even more bearish.
IOB:
Bearish head and shoulder pattern has been formed in short term charts. The stock has broken the support trendline in weekly charts twice.
PNB:
Bearish double top formation has occurred in daily charts. Though the stock has been trading above the resistance level of 487, volumes have been declining and the stock is moving sideways. It has closed below the support trendline for 3 weeks now. With declining volumes one may not see stock moving up further.
PNB:
Bearish double top formation has occurred in daily charts. Though the stock has been trading above the resistance level of 487, volumes have been declining and the stock is moving sideways. It has closed below the support trendline for 3 weeks now. With declining volumes one may not see stock moving up further.
SBI:
SBI has not broken the medium term support at 1600 on weekly chart. It is trading well above its medium term support trendline. It closed below 1600 on March 18 but has bounced back since then, though trading sideways. There are no reversal signs in both short and medium term charts. This stock may move either way, depending upon breakout direction.
HDFC Bank:
HDFC Bank:
It is moving in a descending channel pattern since last couple of months. Though the upper trendline of the channel has been pierced on April 17, a close above 1467 is needed to confirm bullishness. Also, a bearish double top has occurred between November 2007 and January 2008 which will act as a strong resistance.
ICICI Bank:
The stock has formed a head and shoulder pattern in daily charts. It has also broken the medium term support at 791 and closed below this level on 3 occasions. The stock appears to be bearish for both short and medium term.
We can see that most of the prominent banking stocks are already bearish with the exception of SBI. CRR hike is viewed as negative news, but it may not affect the banking sector since the stocks have already gone down anticipating this development. "Forget the news, remember the chart!"
ICICI Bank:
The stock has formed a head and shoulder pattern in daily charts. It has also broken the medium term support at 791 and closed below this level on 3 occasions. The stock appears to be bearish for both short and medium term.
We can see that most of the prominent banking stocks are already bearish with the exception of SBI. CRR hike is viewed as negative news, but it may not affect the banking sector since the stocks have already gone down anticipating this development. "Forget the news, remember the chart!"
Also, the Nifty is currently moving in a descending channel and on Thursday it just managed to hit the upper resistance trendline. If the pennant formation has to be negated, it has to close above 5545 (in which case there will be an inverse head and shoulder pattern). Given this scenario, the market is likely to correct further but it will be purely because of technical reasons.