The Indian equities have had a great run over the past year. Among the sectoral landscape, the PSU banking space showcased a strong performance along with other sectors. If we look at a rolling 12-month performance, the Nifty PSU Bank Index has strongly outperformed the NIFTY by gaining 81.42% over NIFTY’s returns of 25.15%.

Most of the PSU Banks have had a great run even on a YTD basis. Among others, this PSU Banking major has shown a strong breakout from a continuation pattern and is set to move higher from its current levels.

Let us turn to examining relative performance on a Year-to-Date (YTD) basis. State Bank of India (SBIN) has returned a decent 24.94% of returns on a YTD basis and has performed in line with the PSU Bank Index which has returned 28.19%. Both the PSU Bank Index and SBIN have relatively outperformed the NIFTY which has returned 3.12% over the same period.

The NIFTY PSU Bank Index is made up of 12 constituents, i.e., 12 public sector banks. Out of these, SBIN enjoys the highest weight of 32.69% in this index almost making up a third of it. The Nifty PSU Bank Index has broken out from a symmetrical triangle; a contribution from SBIN would be required for this index to move higher looking at the weight SBIN has in the Index.

A look at the daily chart of SBIN shows that the stock has broken out from a symmetrical triangle. It is important to note that symmetrical triangles are neutral formation and it is always prudent to wait for a price confirmation before taking on any directional bias. However, it should be noted that most of the time, such technical formations of symmetrical triangles act as continuation patterns and prices generally resolve in the direction of the trend. SBIN’s case is no different.

The other technical parameters also support a bullish view. The stock is inside the leading quadrant of the RRG when benchmarked against the broader NIFTY 500 index. A stock rolls inside a leading quadrant when both JdK RS Momentum and JdK RS Ratio cross above 100; this ensures relative outperformance of the stock against the benchmark. The Relative Strength line (RS line) against the broader Nifty 500 index is in a strong uptrend and is seen inching higher.

Zooming out to a higher timeframe weekly charts paints an equally encouraging picture. It was in December last year that the stock broke out from a year-long Symmetrical Triangle formation. It moved higher sharply, consolidated briefly, and is now seen resuming its move higher after a short breather.  The On-Balance Volume (OBV) at its high confirms the participation of volumes in the move.

Going by classical price target interpretation on the charts, SBIN can be expected to test Rs. 900 levels over the short-to-medium term. This could mean a potential appreciation of 12.50 % from its current levels. The stock may see some minor pullbacks; it can be accumulated in the Rs. 780-810 levels in that scenario. From a trade and risk management perspective, a close below Rs. 748 would trigger an exit from the stock.

-Foram Chheda, CMT