The banking space has been a crystal-clear winner for the last few months. This is one sector that has turned out to be a goldmine for investors. However, what’s more surprising is that this time the street went crazy for the PSU banks which were not an option a couple of years back. Clearly, the clean-up of their balance sheets and improving corporate earnings are what are changing the minds of investors.
To give you a glimpse of how furiously these banks have rallied in a very short span of time, the index which was around 2,283 on 20 June 2022 is now at around 3,970 on 22 November 2022. That’s a gigantic rally of around 73%! And here we are not talking about individual stocks but the entire sectoral gain. I don’t remember when was the last time I had seen such a ferocious rally in an index.
Individual counters such as Karnataka Bank (NS:), South Indian Bank (NS:), UCO Bank (NS:), etc have already doubled in this time frame. But the question here is how much potential in this rally is left if you plan to go long at these rates? Some might think that these stocks are already up 50%, 70%, 100%, etc. so are probably overbought and no point in going long from here. But one needs to know that stocks that are in a serious bull run will always become overbought on their way up to multibagger returns. Here, I am not providing any levels but trying to put emphasis on risk management.
However, before participating in this rally, you should have a clear-cut answer to where you will be making an exit if the rally starts to fade. This is the most important thing in trading – Risk management. The question is not how far the stock could go from here, but what’s your plan of action to capture a part of the rally if it occurs and to get out almost unscathed in case of a U-turn.
Looking at a longer view, the Nifty PSU Bank index could touch 4,300 which poses another 8%-10% upside on the index level. This means that individual stocks could easily show a run-up of more than that. However, the reason I’m emphasizing too much on risk management is that in most of the stocks there’s no level to make an entry without exposing yourself to too much risk. The index itself is highly overbought, and if there comes a running correction, then finding levels where these stocks would probably pause is a task in itself.
However, if one has the plan to exit then he/she could further look to capitalize on the rally, else there is no dearth of opportunities in the market. The only finite thing is your capital, so protect it.
I would top it up with one of my favorite quotes from Larry Hite – “I have two basic rules about winning in trading as well as in life: 1. If you don’t bet, you can’t win. 2. If you lose all your chips, you can’t bet”.