HDFC Bank shares on verge of breakout. How to trade?

The merger of HDFC Bank and HDFC was completed on July 1, 2023, and was India’s largest-ever merger and acquisition (M&A) deal. The merger resulted in a number of changes to the bank like size, customer base, shareholder structure and asset transfer among others.

However, over a year after the decline, the stock has nearly recovered its losses, gaining 12% to return to its all-time high zone.

For a major part of its journey from the lows, the stock was in a consolidation phase between the Rs 1,680 level on the upside and Rs 1,600 on the downside. It was later in the month of September itself that the stock broke above the resistance level of Rs 1,680.

Since then, the stock has risen making 7 consecutive green candles in the northward direction, exhibiting strong positive momentum.

“The stock has maintained a long-term uptrend, with the upward trend line acting as reliable support during pullbacks. This trend suggests further upside potential if the stock can break above the current resistance range of Rs 1,780–Rs 1,790,” said Mandar Bhojane, Equity Research Analyst at Choice Broking.The favorable alignment of moving averages further reinforces the stock’s bullish trend.However, the stock is in overbought territory, though, since the RSI is close to 81.

“This means that even while there is a lot of buying pressure, there can be a little pullback or a period of consolidation before there is any more upward momentum. Important support levels are at Rs 1,730 and Rs 1,705, which, should the market retreat, may present a better entry point,” Bhojane added.

However, Bhojane also stated that another surge can be sparked if the stock breaks out above the resistance of Rs 1,790 with significant volume, advising traders to consider entering on a breakout with potential targets in the Rs 1,900–2,000 range.

Alternatively, a pullback to the Rs 1,730–Rs 1,700 support zones could offer an even better risk-reward setup, with the goal of a return to the Rs 1,780 all-time high region. In either scenario, it is essential to place a stop-loss just below the key support levels to manage risk effectively, cautioned Bhojane.

Ajit Mishra, SVP, Research at Religare Broking also believes that after finally approaching its record high after months of underperformance, HDFC Bank shares are expected to consolidate around current levels before the next upward move.

“Positional traders should take advantage of this phase to accumulate in the 1750-1800 range, targeting an upside potential of Rs 2,100+ in the coming months,” Mishra stated.

In the event of profit-taking, a strong support around the Rs 1,700 is anticipated, he added.

Meanwhile, the shares of HDFC Bank closed flat at Rs 1,782.30 on BSE on Thursday.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)