International Journal of Applied Engineering Research

ISSN 0973-4562 Volume 9, Number 19 (2014) pp. 6329-6341

Research India Publications
http://www.ripublication.com

A Study on Technical Analysis of New Private Sector

Banking Stocks in India
K. GOVINDARAJAN
M.COM. M.Phil. ACS. M.B.A.
Professor, School of Management,
SASTRA University, Thanjavur, Tamilnadu, India.
Mail ID: kggtn@yahoo.co.in
Phone: 9894360702
SHREENIVASAN .K. A
M.B.A. M.COM. NET
Asst. professor, School of Management,
SASTRA University, Thanjavur, Tamilnadu, India.
Mail ID: shreenika@mba.sastra.edu
Phone: 9443363189
TAMIL MUTHAR PAVALAN .V
Final year student, School of Management
SASTRA University, Thanjavur, Tamilnadu, India.
Mail ID: firsttamil10@gmail.com
Phone: 9578740008
Abstract
Stock market plays a vital role in mobilizing the savings and diverting it into
industrial enterprises. Investment in stocks is not well received by all
investors. Only those investors who are prepared to take risk can venture into
stock market. For stock selection investors will consider number of factors
such as economy, industry and performance of company. Investment may be
made from short term perspective and from long term point of view. Short
term investors will analyze the market movement and they may decide to enter
and exit the stock market at the appropriate time to maximize their profit
.Though number of statistical tools are available 200 days daily moving
average, relative strength index, rate of change and Bollinger point are
considered as reliable tools to help the short term investors. The research
paper focuses the share price movement of new private sector banks and
analyzes the reliability of the statistical tool in suggesting suitable time for
entry and exit from such investment

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Key words: New private sector banks, Moving average, Relative strength
index, rate of change and Bollinger point

1.1 Introduction
Investment in stock market is not considered as a safe form of investment. People still
have a fear that investment in stock is highly risky and there may be occasions the
investors may lose major share of their capital. Movement of share prices is watched
not only by the investors but also by the regulatory authorities and by the government.
When there is an upward movement in the sensex, institutional investors and foreign
investors will pump more money into the stock market. On the other hand investors
will exist in bearish market to mitigate their losses. While framing the portfolio,
investors always have an option of choosing aggressive portfolio and defensive
portfolio. While selecting the shares investors will take into account the fundamental
aspects of the economy, industry and company. Similarly investors may analyze the
share price movements on the basis of certain statistical tools. In technical analysis
past price movements and volume of shares traded are taken as a base for predicting
the future price movements. High volatility is not noticed in banking stocks and they
are considered as defensive portfolio and investors can make reasonable profit on
such investment without much stress. The private sector banks in India are classified
as old private sector banks and new private sector banks by the Reserve bank of India.
Banks, which came into existence due to introduction of financial and economic
reforms in the year 1991, is called as new private sector banks. At present we have 7
new private sector banks and 18 old private sector banks in India.

1.2 Review of literature

Chaudhari Kalidas Nanabhau (2008) coined that fundamental analysis can be done for
long-term investment decision and technical analysis can be done for short-term
investment decision and he added that most of the investors use fundamental analysis
for investment decision. Shyam Sundhar(2006) used two moving averages, namely,
SMA and DMA and used a 15 year time period and data from NSE. This study
reveals the fact that extra-normal returns can be earned by using the DMA.
Venkatesh, C.K (2011) has found that short term investor & mutual funds prefer
technical analysis tools to make better investment and it has better advantage over the
fundamental analysis in view of large number of respondents. It is concluded that
most of the respondents gives importance to both fundamental and technical analysis
for their investment decisions. Jiang, Yiyi (2012), the study found evidence in favour
of the superiority of fundamental indicators to forecast risk adjusted returns over the
technical rules. The study also reveals that the active strategies based on any of both
fundamental and technical indicators permit the investors to reduce the level of risk
supported below the one of the passive strategy. Dr. Vanita Tripathi (2008) stated that
the majority of the investors use both fundamental and technical analysis for their
investment decisions. It is also observed that the investors have the same opinion that
various company fundamentals strongly influence the India stock prices. This study

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reveals that most of the respondents agree that factors such as book value of market
equity, operating and financial leverage, price earnings ratio have strong influence in
price fluctuations in equity returns. R.Chitra (2011) has concluded that investors have
to wait for right opportunities keeping in touch with the variations in market
environment to enter into stock market. B. Sudheer Kumar, (2012) analyzed the future
price prediction by using Dow Theory and concluded that it gives a clear view about
the risk and return of the shares. It is also stated that Dow theory helps to choose the
right shares for buying and selling. N R Benjamin Franklin (2012) in his study has
mentioned that the technical analysis studies the behavior of the price of the stock to
determine the future price of the stock and he added that the Stock price and stock
price average is a tool for investors. The study suggested that the Investors have to
concentrate on all information of shares and not in moving average alone. Khyati
(2010), stated that the selection pattern of investment portfolio on the basis of
fundamental analysis gives a greater return than technical analysis. Venkatesh C.K,
(2013), concluded that the majority of the respondents depend upon both fundamental
and technical analysis to predict future price movements. The study also observed that
there lies a significant positive correlation between economic factors and companys
management. Gururaj Kulkarni (2013), the study clearly revealed that Fundamental
analysis is preferred by majority of the respondents in choosing stocks to yield higher
returns. The study also stated among the five sectoral stocks chosen, real estate stocks
is emerged as the most preferable stocks by the investors. This obviously revealed that
the investors have a strong opinion in the companys past performance, and its value.
Sathya Varathan N and Tamilenthi (2012), stated five rules for buying and selling the
shares such as avoidance of greedy, avoidance of unnecessary tips, avoidance of
timing of market, avoidance of sentiments, avoiding the panic while market drops.
The study analyzed the top 10 stocks among the weightage of nifty and gave the
suitable investment suggestion to an investor before investing in top nifty companies.
Neetu Hans(2012), discussed about investment decision in ICICI bank as well as
EIC analysis of Indian banking sector. The analysis is carried out on the ICICI Bank,
and its profit and loss account, balance sheet and ratios. It suggests the ICICI Bank for
their investments than the other banks as a value investment. enol Emir (2012), is
noticed that the performance difference between SVM and MLP models created by
application of feature selection decreased significantly. It is also observed that the
models created by means of the SVM method are presenting more successful results.
Karthikeyan.B (2009) mentioned that the Elliott Wave theory is valid in the Indian
context, at least in the selected sectors namely automobile, banking, energy,
information technology, and telecommunications. It also revealed that the Elliott wave
pattern can be used in banking sector for predicting the future price movements.

1.3 Objectives of the Study

To understand trends and patterns of share price movements of new private
sector banks in India.
To offer suitable suggestion to the investor about the timing of entry into the
stock market

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K. GOVINDARAJAN et al
To offer suggestion to the investors about the timing of exit from the stock
market

1.4 Methodology of the study

a. Sample selection
For the purpose of this study, stocks of all new private sector banks except
Development credit bank, listed in stock exchanges were considered. Since adequate
data for development credit bank is not available in the website of NSE it is not
considered for analysis
b. Period of the study
The data used in this study consist of one year (01-01-2013 to 31-12-2013) for
technical analysis
c. Sources and Collection of Data
The present study was mainly based on secondary data (banking stock daily prices).
Further, the available secondary data were collected from the Annual Reports,
published research reports by banking industry etc. In addition, other related
information was collected from various periodicals and websites like
www.nseindia.com and www.yahoofinance.com.

1.5 Tools Used for Analysis

a. Moving Average Convergence and Divergence (MACD)
It is used to predict movements in the market. An analyst is generally in a problem,
whether to use long term moving average or short term moving average, the
solution for such problem is to use MACD. This difference helps in identifying,
whether prices in the recent past have moved upward or downward as compared to
longer period movement.
MACD = Short period Moving Average Long period Moving Average
b. Relative Strength Index
Developed J. Welles Wilder, the Relative Strength Index (RSI) is a momentum
oscillator that measures the speed and change of price movements. It is one of the
powerful oscillators, which indicates market movement much before such movement
takes place. Under RSI, gains and losses of prices over the immediate previous days
price for a certain graph to identify overbought and oversold market. Market always
moves southward after an overbought situation and it moves northward after an
oversold situation.
RSI = 100 - 100/ (1 + RS*)
*Where RS = Average of n periods price gain / Average of n periods price
loss.

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c. Rate of Change
ROC is an indicator, which helps in identifying over bought and over sold market.
With the help of this, buying and selling signals are generated much before the market
makes a movement. Generally, 7 days (value) ROC is calculated on a rolling basis,
which is an eighth day price is divided by first days price.
d. Bollinger Band (BB)
Bollinger Band is calculated based on Standard Deviation and close price of the stock
at a given interval. Bollinger Bands values provide an insight on how much more the
stock can rise if it is in Bullish trend. Or, how much can it fall, if the stock is in
Bearish trend. Bollinger band are calculated based on following formula
Upper band = SMA (20) + 2 (SD)
Lower band = SMA (20) 2 (SD)

1.6 Results and discussion

a. BETA
Beta is considered to be a very reliable financial indicator to measure quantum of risk
involved in investing in stock market. The high Beta indicate the risk involved in the
counter is very heavy. High Beta stock will give a good return in a bullish trend. The
speculative investor may prefer to buy high Beta stock, hoping to make huge amount
of profit. The conservative investors may prefer the buy less Beta stock. In table
umber 4.2.1Beta value for the new private sector bank is presented
Table 1 Beta value of new private sector banks
NAME AXIS
ICICI HDFC INDUSIND KOTAK
YES
BETA 0.44875 0.5425 0.33936
0.42307
0.33496 0.70799
Source: Based on Secondary Data

The above table clearly shows that new private sector banks are less risky
compared to other sector. The BETA value of all the banks is below 1 which means,
less volatile than the market. It is less risky to invest in such type stocks. In the study
period (1-1-2013 to 31-12-2013) market risk of new private sector banks is less risky
than the market movement. Beta value ranges (0.3 to 0.7), among the new private
sector bank. HDFC bank & KOTAK bank are less risky compared to YES bank.
b. Moving Average Convergence and Divergence (MACD)
The term MACD transforms Moving Average Convergence and Divergence. It is
used to predict the movement in the stock market. MACD is difference between short
term moving average and long term moving average. For the purpose of analysis
3days moving average considered as short term 7days moving average considered as
long term. In table number.2, MACD of new private sector bank is presented on
quarterly basis.

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K. GOVINDARAJAN et al
Table.2: Quarterly MACD of new private sector banks

BANK
JAN-MARCH APR - JUNE JULY SEP OCT DEC
AXIS
-2.6812
-1.4622
-7.2545
8.4965
ICICI
-5.494
0.4499
-3.3079
5.4422
HDFC
-2.3899
0.7499
-0.4905
1.5166
INDUSIND
-1.1546
1.9383
-2.5084
1.291
KOTAK
-0.5422
2.1401
-0.0769
0.978
YES
-2.0838
0.4642
-4.3135
1.9593
Source: Based on Secondary Data

Initially, MACD line of (HDFC, INDUSIND, KOTAK and YES) showed

downtrend from 1-Jan, 2013 to 31-sep-2013, but afterwards 1-November 2013 to 31December 2013 it was bullish. The MACD line was peak on December 2013.
Initially , MACD line of (AXIS,ICICI) was in positive zone from 1- Jan,2013 to
15 April,2013, and it was bullish, but afterward bears came in to market the MACD
mark downward from 1-May to 31-Aug,2013,After sometime bullish entered the
market and price had gone up.
MACD line of (AXIS,ICICI) forms a peak at the top in the month of December, it
give signals that the market will soon turn bearish, it indicates the selling signals, and
other banks(HDFC, YES, INDUSIND, KOTAK) MACD line also continues in the
positive zone, it indicates the selling signals.
c. Relative Strength Index (RSI)
It is one of the powerful indicators, which indicates market movement much before
such movement takes place. When RSI value is at or above 70-level and moving up
upward, it indicates that market is likely to reach the peak due to overbought position,
on the contrary, when RSI value is at or below 30-level, it indicates an oversold
situation and the market is likely to bottom out. When the RSI value is In-between 50level, it is used to confirm the safe signals. Market always moves southward after an
overbought situation it moves northward after an oversold situation.
Table 3 Quarterly Relative Strength Index (RSI)
BANK
JAN-MARCH ARL JUNE JULY SEP OCT DEC
AXIS
44.7967
37.5342
41.7477
61.9985
ICICI
41.5862
40.0096
41.2017
57.0235
HDFC
42.32
51.6078
47.3402
52.8594
INDUSIND
45.644
53.1418
44.2305
54.9908
KOTAK
38.4456
50.4649
47.3745
49.3832
YES
42.1218
45.3728
44.4673
49.802
Source: Based on Secondary Data

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RSI is calculated for 6 scrips and quarterly average is presented above. The RSI
data shows wide fluctuation from the quarter to quarter. The RSI line mixed above
and below the 50 - marks line most of the time, it indicates a bullish and bearish trend
for the scrip alternatively. In RSI analysis, the prices fall in the oversold region, from
Jan, 2013 to Aug, 2013 so price rose in SEP to DEC, 2013. The RSI data for OCTDEC clearly indicates there is an upward journey for stock price. The RSI analysis of
(Axis and ICICI) on 9 DEC 2013 shows overbought situation for those stocks. Since
RSI crosses 85-mark line from downward. It signifies that soon, peak would generate
and then market will fail, it will become bearish. So it indicates the sell signals. So its
better to sell the Axis, ICICI share now and buy later.
The RSI line of other banks (HDFC, INDUSIND, KOTAK, YES) were less than
50 from Jan to May, 2013 and moving upward continuously, it indicates that the
market has come out of the red and in the near future, it is expected to have a upward
movement, so it indicates short term investors are advised to buy now (Dec, 2013)
and sell within a month where as long term investors are advised for waiting some
time.
To justify the buy and sell signals on the basis of RSI data, profitability after
buying and selling each script is presented below.
Buy signals
When RSI is below 30 it indicates buy signal. The profitability on such purchase is
analyzed when purchases had taken place. For the purpose of analysis, 5th day price is
compared from the date of purchase The analysis shows that purchase made on the
specific days (23) for Axis bank. Investors would have made profit on 14 purchases
and he would have incurred loss for 9 purchases. It clearly shows there is a fair
chance of making profit when decision to buy is made on the basis of RSI.
Similarly for ICICI bank the RSI line given the buy decision 33 times Out of (33)
buy decision 20 buy decision had earned reasonable profit it means that the price has
risen considerably in the subsequent days.
As regards ICICI bank for purchase made on the specific days (22), he would
have made profit on 14 purchases and he would have incurred loss for 8purchase. It
clearly shows there is a fair chance of making profit when decision to buy is made on
the basis of RSI. With reference to Indusland bank for purchase made on the specific
days (26).the investor would have made profit on 15 purchases and they would have
lost for 11 purchases. It clearly shows there is a fair chance of making profit when
decision to buy is made on the basis of RSI.
In case of Kotak Mahindra bank, for 22 purchases, profit is for 16 purchase and
loss on 6 purchases and for yes bank for purchases made on 24 occasions the investor
would have made profit on 15 purchases and they would have incurred loss on 9
purchases.
Sell signals:
Just like buying share on the basis of RSI we can also sell share on the basis of RSI
when it has crossed the magic number of 70..out of 27 sell decision 20 sell decision
had earned, reasonable profit; it means that the price had fallen considerably in the

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K. GOVINDARAJAN et al

subsequent days.
The table clearly shows the sale made on the specific days (19), he would have
made profit on 12 sale and he would have incurred loss for 9 sale. It clearly shows
there is a fair chance of making profit when decision to sell is made on the basis of
RSI. The RSI of HDFC sell signals is not properly working, it gives 49 selling
decision. Out of (49), only 19 decisions gives the profit. So in case of HDFC bank
RSI, selling decision is not generating profit> out of 29 sell decision for Indusland
bank15 sell decision had earned reasonable profit it means that the prices had fallen
considerably in the subsequent days. In case of Kotak Mahindra bank the RSI analysis
not properly working. It gives 39 selling decision; out of (39), only 18 decision has
yielded profit. So in case Kotak Mahindra bank RSI based selling decision did not
give the profit. It clearly shows that the selling decision based on RSI gives
reasonable profit.
d. Bollinger Bands
This is one of the most common tools used for technical analysis. The closer the
prices move to the upper band, it shows bullish trend and the closer the prices move to
the lower band, it shows bearish trend in the market.

Axis bank

Source: Based on Secondary Data

In case of Axis bank closing price cross upper bond in May 2013 at the same
month RSI also cross the 80 level it indicates the sell signals. Closing price did not cut
the lower band. So we cannot take any buying decision with help of Bollinger band.

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6337

ICICI bank

Source: Based on Secondary Data

The Bollinger bands of ICICI bank did not cross the upper and lower bands, in
this case it is better to hold the share for long term.

HDFC Bank

Source: Based on Secondary Data

From the above analysis we can state that the stock was breached lower band in
Jan, 2013. In the month of May, July, Oct and Dec the stock breached the upper band.
So it gives a sell signal in analyzed period. The above chart shows BB of HDFC with
a Bottom in January-2013. First, the stock formed a reaction low in January and broke
below the lower band. Second, (Feb-2013) there was a bounce back above the middle

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K. GOVINDARAJAN et al

band. Third, the stock moved above the upper band (May, July, Oct, and Dec) selling
decision can be carried out in the month of May, July, Oct, Dec- 2013 and buying
decision during the period of March, June, Sep, Nov-2013

Indusind bank

Source: Based on Secondary Data

Bollinger band of Indusind bank stays at the peak most of the time. It has
breached the upper band most of the time, simultaneously the RSI line give the sell
signals. So we can take the decision with help of Bollinger bands to sell the scripts

Kotak Mahindra bank

Source: Based on Secondary Data

The RSI of Kotak Mahindra bank was peak in the month of Oct-2013,
simultaneously closing price of Kotak Mahindra bank cross the upper band. So it
indicates the sale signals.

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6339

YES bank

Source: Based on Secondary Data

Yes bank closing price travel with upper band and most of the time it cross upper
band. It shows the sell signal but it does not match with RSI based decision. BB of
Yes bank did not touch the upper band, so we cannot take any buy decision
exclusively on the basis of BB

1.7 Findings
Beta value of all new private sector banks are less than 1, it shows that new
private sector bank stocks are less risky.
Moving average Convergence and Divergence (MACD) have shown trend on
bullish and bearish period on the banking stocks.
RSI data has provided information about selling share above 70 levels and
buying share below 30 levels. In most of the case the investor would have
made the profit on the basis of RSI.
When ROC line has made a peak, it is the identification of overbought market,
and market is likely to decline, investor should sell the share. When share are
sold on ROC basis and purchase are made with ROC the investors made a
profit of all banking stocks.
Bollinger bands provide information about buy and sell signals however it
should be used with RSI for accurate decision. From the analysis, except
Indusind Bank, all other banks buy and sell signals work with RSI data.

1.8 Suggestions
On the basis of findings the following suggestions are offered.
Investors should prefer banking stocks compared to other sector, since its Beta
value less than 1.
Long term investors should prefer fundamental analysis rather than technical
analysis.

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K. GOVINDARAJAN et al
Technical analysis can be considered for short term decision making and
investors should be alert towards entry and exit from stock market

1.9 Conclusion
Though investment in stock market is highly risky, banking sector seems to be less
risky compared to other sectors. Conservative investors consider banking stocks as
defensive portfolio. When sensex moved from 20,000 22000 the investors of new
private sector banks have gained substantially. In the period of March 2014 a steady
upward movement of banking stocks is witnessed. The investors who have purchased
banking stock in the month of February would have made more than 10% return on
their investment. The long term investors will be rewarded by way of right issue
which may be made by the banking sector in order to meet the capital requirements as
stated in Basel-III.

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