Are the Nifty PSU indices staring at up to 15% fall from current levels?

This particular technical indicator on the weekly charts suggests that the Nifty PSE, CPSE and PSU Bank indices could consolidate or dip in the near-term

Amid the recent decline in midcap and smallcap counters over the past three trading sessions, stocks of public sector undertakings (PSUs) have also faced a downturn, with the National Stock Exchange Nifty CPSE, Nifty PSE, the Nifty PSU Bank slipping by 2.6 per cent, 1.7 per cent, and 1.4 per cent, respectively.

In comparison, according to data, the Nifty Smallcap, Nifty Midcap, and the Nifty50 indices shed 3.1 per cent, 2.2 per cent, and 0.1 per cent, respectively, during this period.

Despite the fall, the key PSU indices are holding onto the crucial moving averages such as the 20-day moving average (DMA), 50-DMA, and 100-DMA on the daily scale.

In simple terms, the short-term moving averages are positioned higher than the medium-term averages, suggesting that the broader trend remains positive.

However, the charts indicate that these indices are testing support around their respective short-term moving averages (20-day DMA). Technically, as long as the indices sustain above them, the short-term trend is considered positive.

However, a worrying signal emerges.

For the first time since November 2023, the weekly Relative Strength Index (RSI) has shown a negative divergence. This suggests that the index may consolidate or face downward pressure in the near term.

Similarly, the weekly RSI has also displayed a negative divergence for the Nifty CPSE index. Furthermore, the weekly RSI seems set to turn negative for the Nifty PSU Bank index.

At the fundamental level, Chokkalingam G, founder and head of research at Equinomics Research, mentions that many PSU stocks are still trading at steep valuations and might experience further correction from here on out.

“The run-up in 2023 in several PSU stocks had been sharp, taking valuations to the stratosphere. They’re now undergoing a reality check. Select stocks from the oil and gas, bank, railway, and defence sectors can still undergo a correction of 10-15 per cent from current levels. This is healthy and will wipe out all the excesses,” he said.

In the past year, while the Nifty50 gained 29 per cent, the rally in select PSU stocks has been remarkable, with shares of Indian Railway Finance Corporation rising nearly 413 per cent during this period, according to ACE Equity data.

Regarding PSU banks, analysts at Kotak Institutional Equities suggest that Tier-II PSU banks have seen a sharp valuation rerating over the past two years, resulting in a swift convergence in the valuations of all PSU banks closer to State Bank of India (SBI). Making an investment case for Tier-II PSU banks, they believe, has become challenging.

 

“We continue to prefer SBI (retain ‘buy’) as our preferred stock within the PSU bank space while retaining an ‘add’ rating on Bank of Baroda and Union Bank. We downgrade Canara Bank to ‘reduce’ and Punjab National Bank to ‘sell’,” their analysts wrote in a recent note.

Here are the key levels that one needs to watch on the charts for these PSU indices going ahead.

Nifty PSE

Current Level: 9,555

Downside Risk: 15.5%

Support: 9,100

Resistance: 9,750

On Monday, the Nifty PSE index was seen trading with a negative bias for the third straight session. The index is presently quoting close to its 20-DMA which stands at 9,367; below which the weekly chart suggests presence of support around 9,100 levels.

However, breach and sustained trade below the same, can trigger a slide towards the 20-WMA (Weekly Moving Average), which stands at 8,055 - thus suggesting a potential downside risk of around 15.5 per cent from present levels. On the upside, its recent high around 9,750 is likely to act as a resistance. CLICK HERE FOR THE CHART

Nifty CPSE

Current Level: 5,976

Downside Risk: 13.8%

Support: 5,870

Resistance: 6,125

The Nifty CPSE index has near support at 5,870 (20-DMA), and on the upside the index is expected to face resistance around 6,125. Sustained trade below the 20-DMA, can trigger a fall towards 5,150 levels, shows the weekly chart. CLICK HERE FOR THE CHART

Nifty PSU Bank

Current Level: 7,245

Downside Risk: 14.4%

Support: 7,100; 6,900

Resistance: 7,400

The Nifty PSU Bank index has near support around the 20-DMA at 7,100 levels, below which immediate support for the index is positioned around 6,900 levels. Break and sustained below these support levels, opens the possibility of further fall towards 6,200-odd levels, suggests the weekly chart. On the upside, the Nifty PSU Bank index is expected to face resistance around 7,400 levels. CLICK HERE FOR THE CHART