Uptrend near exhaustion; build positions in bank stocks

The Sensex on Wednesday closed at 19,948.73, up 97.50 points from the previous day’s close of 19,851.23 points. The Nifty closed at 5973.30, up 18.05 points from Tuesday’s close of 5955.25. 

Also read: Comeback kid Sensex ends in green; HUL up 10%, banks falls The market has again entered a trading area or zone where it is too volatile to take any kind of directional call. The floor or the support price for this zone seems to be at 5900. Market experts see this as a sign of the market uptrend getting exhausted.  Sudarshan Sukhani of s2analytics.com says, “The level of 5900 is the broad support for the Nifty, from where it can bounce 100 points. The worry is not that the market is entering such a zone; the worry is that it is happening so quickly. It was in such a zone just seven days ago, and is coming back to similar environments. That tells us that the uptrend is getting exhausted.” Shares of bank stocks continued to fall on Wednesday, with the Bank Nifty down 2 percent, an extended reaction to the Reserve Bank of India (RBI) announcing measures to address exchange rate volatility on Monday.  These moves are expected to increase banks’ cost of borrowings. But experts feel that from a valuation perspective, one should use this as an opportunity to build positions in these stocks.  “There is a lot of uncertainty created in investors minds about the kind of impact on individual banks with this move. This gives you a very opportune time to build positions, especially for longer-term investors to get into banks like Yes Bank and Kotak Mahindra Bank, which remain very high quality private banking franchises with great growth prospects,” says Gautam Sinha Roy VP - equity strategy & product, Motilal Oswal Securities The rise of HDFC Bank’s net non-performing assets (NPA) to about 0.3 percent is not seen as a cause for concern. SP Tulsian of sptulsian.com says, “I think the numbers came on the expected lines, expect for the net non-performing assets (NPA). The gross NPA has been maintained at 1 percent but the net NPA has risen to about 0.3 percent. However, I don’t think one should be too worried because the bank has been consistently posting the good numbers on the expected lines with profit after tax (PAT) of Rs 1840 crore. ”