By Sundaramurthy Vadivelu
The banking system in India is more than 200 years old. The General Bank of India was founded in 1786 (now defunct) was the first ever bank in India. The oldest surviving bank in the country is State Bank of India (SBI), which was established as “The Bank of Bengal” in 1806. Subsequently more banks were in operation, like Allahabad Bank, Punjab National Bank, Bank of India etc.
After India’s independence, the larger commercial banks were nationalized in 1960s to enable the government in controlling credit delivery. By 1995, the liberalization policy of the government allowed private sector participation in banking industry. This was followed by foreign direct investment (FDI) in banks. As of now, there are 28 public sector banks (with Government of India holding a stake), 29 private banks (without Government stake but listed in stock exchanges), 31 foreign banks and plenty of medium and small co-operative banks. The Reserve Bank of India (RBI) is India’s central bank and it is the ultimate authority for control of banking operations.
At both BSE and NSE, several public sector banks (State Bank of India, Punjab National Bank, Indian Bank etc.) as well as private sector banks (ICICI Bank, HDFC Bank, Kotak Bank etc.) are listed.
Let us now discuss the financial and stock performances of some listed private sector banks. Bank of Rajasthan is listed under ‘T’ group in BSE and is not included here.
The following table shows 6 month, one year and 5 year percentage return of these stocks.
For detailed information about close prices on various dates, please click here.
| Scrip | 6 month return | 1 year return | 5 year return |
| AXISBANK | 18 | 68 | 1,489 |
| CENTBOP | 5 | 58 | 336 |
| CUB | 15 | 60 | 610 |
| DCB | 45 | 113 | 113 |
| DHANBANK | 25 | 196 | 158 |
| FEDERALBNK | 42 | 71 | 1,128 |
| HDFCBANK | 15 | 32 | 434 |
| ICICIBANK | 1 | 50 | 532 |
| INDUSINDBK | 10 | 16 | 222 |
| INGVYSYABK | 39 | 83 | 155 |
| J&KBANK | 6 | 69 | 658 |
| KARURVYSYA | 16 | 47 | 367 |
| KOTAKBANK | 56 | 120 | 1,903 |
| KTKBANK | 1 | 60 | 413 |
| LAKSHVILAS | 7 | 52 | 277 |
| SOUTHBANK | 36 | 93 | 287 |
| YESBANK | 14 | 99 | 183 |
It can be seen that NONE of the private sector banks have yielded negative returns in the last 6 months. Axis Bank, Federal Bank and Kotak Bank have appreciated more than 10 times in the last 5 years. Dhanalakshmi Bank, Development Credit Bank, Kotak Bank and Yes Bank have doubled in the last one year.
Bank Nifty (NSE) and Bankex (BSE):
The private sector banks in Bank Nifty and their weightages are given below:
| Scrip | Weightage % |
| HDFC Bank | 12.35 |
| ICICI Bank | 28.78 |
| Kotak Bank | 6.44 |
| Axis Bank | 5.52 |
The private sector banks in BSE Bankex and their weightages are as follows:
| Scrip | Weightage % |
| ICICI Bank | 41.91 |
| HDFC Bank | 13.35 |
| Axis Bank | 5.96 |
| Kotak Bank | 4.48 |
| Centurion Bank of Punjab | 1.62 |
| Federal Bank | 1.23 |
| Karnataka Bank | 0.96 |
| Yes Bank | 0.65 |
This amounts to weightages of 53% and 70% for private sector banks in Bank Nifty and BSE Bankex respectively.
Let us now analyze the medium term outlook for Bank Nifty.
http://groups.google.com/group/theindiastreet/web/BANKNIFTY_WEEKLY.jpg
In the weekly chart displayed above, the BANKNIFTY is currently on a corrective decline (wave 4) from a peak of 7209. The first wave had a retracement of 193% i.e. 3414 to 6596. According to Elliott wave theory, the previous high should act as a support when the stock corrects during the five wave pattern. It can be seen in the above chart that it was exactly the case. Bank Nifty managed to close below its previous high of 5074 once and it had bounced back. Similarly the previous high at 6596 should act as a support for the current decline, though it has managed to close below it on two occasions. The Bank Nifty should reverse in all probability soon. The target, when calculated from a low of 4837, works out to 7826 which is a good 1350 points away.
The monthly chart of BSE Bankex is shown below. (Chart courtesy: BSE web site www.bseindia.com)
http://groups.google.com/group/theindiastreet/web/BANKEX_MONTHLY.jpg
There are no reversal signs in the long term chart of Bankex either. The Bankex too, is bullish now. The long term target for BSE Bankex works out to 9784 when calculated from a low of 6047.
Let us now compare two major private sector banks, HDFC Bank and ICICI Bank in terms of Financial performance in the last few years.
http://groups.google.com/group/theindiastreet/web/HDFC_Bank_Performance.jpg
The two banks have performed consistently. HDFC Bank’s income though, is about 1/3 rd of ICICI Bank’s.
http://groups.google.com/group/theindiastreet/web/ICICI_Bank_Performance.jpg
Medium term out look for private sector banks:
We discussed about ICICI Bank in my previous article “5 India stocks to avoid (medium term perspective)”. A “double top” formation in weekly chart means that the stock will struggle to cross its previous high at 1010. The only encouraging factor though, is that it has still not closed below 791 which is its previous low. So, unless we get a confirmation of bullishness we cannot possibly look for investment opportunities in this stock.
Development Credit Bank (DCB) has not broken its previous resistance at 120.55 on a weekly close basis. It has lost about 14% from its highest close and still there is no sign of any reversal on the upper side. Read more about this stock in “The India Street Analyst Upgrades and Downgrades – Review”.
Indus Ind Bank (see weekly chart below), has not broken its resistance at 64. This stock is looking slightly weak in the sector.
The other private sector bank stocks are bullish in medium term charts, though some have lost more than 20% from their highest close. The trendline supports hold well in these charts; there are no major reversal patterns or candlestick patterns either. So we have to conclude that these stocks would be heading for higher levels.
http://groups.google.com/group/theindiastreet/web/INDUSINDBK_WEEKLY.jpg
Indus Ind Bank, as shown above, is struggling to break its previous resistance at 64. But it is forming higher highs and higher lows though.
Conclusion:
Except for ICICI Bank, DCB and Indus Ind Bank, the rest of the private sector banks remain bullish; Medium term investors can hold these stocks for some more time.
Sundaramurthy Vadivelu
| Suggested Reading |
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We gave a bullish µµµµµ rating for this stock previously. At that time the stock was on the 4th wave and as anticipated, it bounced back after hitting a low of 88.50. During the 5th wave, it managed to break the previous high at 120.55 but did not close above it. This move was not supported by the volumes either, as price increase was accompanied by declining volume (see chart). We can see a “doji” body with long upper shadow, meaning selling pressure at higher levels. It was followed by a red candle (bearish engulfing pattern) and another red candle as confirmation (three outside down pattern). Now the bearishness is confirmed and we modify our ratings to bearish ¶¶. Moreover it has formed a “double top” in daily charts and a close below 88.50 would mean further bearishness in medium term. 
We gave a bullish µµµµ rating last time. But the stock did not break its resistance at 301.35 on a weekly closing basis and a downtrend has started. It has just broken its 38.2% retracement at 242.75 and closed below it. This is perfectly alright, since a decline after a long first wave would be healthy one. 
We gave a bullish µµµµ rating for this stock. It declined from 387 to 340 in July but managed to bounce back after hitting the support trendline. A “bullish three inside up” pattern has been formed over the last 3 weeks, which confirms further uptrend. 
The stock failed to break its horizontal resistance at 34.50 on a close basis, though it achieved a high of 36.80 during the last week of June. 
A bearish three outside down pattern occurred in the stock after a strong consolidation pattern as shown below. 
It has formed an “ascending triangle breakout” as shown below. 
