Meeting with FM fails to cheer banks, PSU Banking index breaches support

PSU Banking index was off its multiple support zone at the start of May 2018. The same bounce was misconceived as bottom fishing for the PSU Banking sector. It was just a short covering after major PSU Banks had badly fallen post Q4 results.

Meanwhile, the Finance Ministry had conducted a meeting taking 11 feeble state-run banks to review plans to come out of prompt corrective action (PCA) of RBI. This was meant to take likely PCA action on the banks with huge NPAs and negative ROE for straight two years. However, Piyush Goyal temporarily appointed to manage Ministry on behalf of Arun Jaitley, assured strengthening of the banks which fell prey to bad loans and frauds before 2014, giving it a political direction.

Nifty PSU Banks had a negative impact or rather could not sustain a bounce despite the major meeting. A sudden jump in the prices was witnessed after recapitalisation was announced, which was short lived. The index is seen making lower tops and lower bottoms since the high at 4,335. Recently, the sector had taken a support at the multiple support zone of 2,685-2,715. However, the index resisted at 50 per cent retracement of the prior downward rally from 3,086 to the support zone. On May 18, the index has breached the said zone and was among the top sectoral losers dragging the market sentiments downwards.

Wait-n-watch for the reforms and actions that might be taken by the government to resolve banking issues and follow a select few with good Q4 performance.