Chart check: SBI rallies 7% post Q2 result. Is the rally sustainable?

Shares of State Bank of India (SBI) advanced around 7 per cent to Rs 221 apiece on the BSE in the morning deals on Thursday, a day after the company posted healthy numbers for the quarter ended September 2020. 

The state-owned lender on Wednesday posted a 51.88 per cent growth in net profit for the second quarter ended September 2020 (Q2FY21). Its profit after tax, on a standalone basis, rose to Rs 4,574 crore in Q2FY21 from Rs 3,012 crore in Q2FY20 on the back of a steady rise in net interest income and a dip in provisions for bad loans. Net profit for Q1FY21 was Rs 4,189 crore. READ MORE

Most analysts, post Q2 results, are of the belief that the earnings normalisation cycle for SBI has begun as the uncertainty brought about by the Covid-19 pandemic is receding significantly. 

"SBI’s operating profit is stable owing to a higher NIM (strong deposits growth and lower interest income reversals) and steady loan offtake (up 7 per cent YoY). One-offs in employee costs tempered profitability, and normalisation is expected from next quarter. Armed with a strong franchise, not to mention slackened competition, the bank aims to build up business through loan market share gain," wrote Santanu Chakrabarti, an analyst tracking the company at Edelweiss Securities in a co-authored November 4 report with Prakhar Agarwal and Anisha Khandelwal.

Lenders in the world’s second-most populous country -- like others globally -- have been hit hard after a nationwide lockdown forced businesses to close, impacting demand for credit and borrowers’ ability to repay.

SBI, which accounts for more than a fifth of loans in India’s banking sector, is a key indicator of the health of the country’s economy that’s set for a historic contraction this financial year. READ ABOUT IT HERE

Here's how the stock looks on the technical parameters.

As this counter has crossed its 200-day moving average (DMA) placed at Rs 211 levels, the outlook has become highly optimistic and the stock can move up in the days ahead. That said, the stock needs to hold the gap-up it witnessed today.

The Moving Average Convergence Divergence (MACD) has crossed the zero line upward indicating a positive direction with momentum staying upward, as per the daily chart. A moving average breakout supported with MACD suggests a “confirming upward” trend for the coming sessions.

With a steep jump in the Relative Strength Index (RSI), the stock price is ready for a surge in the direction of Rs 250 to Rs 265 levels over the medium-term. A positive crossover on RSI with value crossing 60 mark, having strong volumes clearly illustrates a bullish view of market participants.

On the downside, the support stays at Rs 206 on a closing basis. The medium-term outlook looks promising till the counter manages to hold above the 100-DMA, placed at Rs 194 levels. CLICK HERE FOR THE CHART