It’s PSU Bank Decade

Published on: January 18, 2024

Over the years, corporations and institutions have favoured PSU banks for their accessibility to loans while simultaneously investing in Private Bank stocks due to their perceived corporate governance standards. However, recent trends suggest a paradigm shift, with PSU banks poised to take centre stage this decade.

Recently, private banks have showcased stellar performances; it’s time for the National Stock Exchange (NSE) to adjust the weights in the Bank Nifty in favour of PSU banks. Nevertheless, the tide seems to be turning, as the PSU Bank index has demonstrated remarkable outperformance over its private counterparts in the last couple of years.

One compelling way to assess the relative strength between PSU and private banks is through a ratio chart, specifically the NiftyPSUBank / NiftyPVTBank ratio.

The ratio chart provides valuable insights into the market’s sentiment towards PSU banks compared to private banks. As of the latest data, a bullish pattern known as the Rounding Bottom is clearly visible on the ratio chart.

The Rounding Bottom pattern observed on the ratio chart is a technical analysis formation indicating a potential long-term trend reversal. This pattern suggests a shift in market sentiment from bearish to bullish, hinting at a more favourable outlook for the PSU banks. This pattern suggests that the current decade may well belong to PSU banks as they position themselves for a period of resurgence.

With this in mind, there is a compelling case for NSE to consider rebalancing the weights in the Bank Nifty, potentially increasing the allocation to PSU Bank stocks.