What does the relative price strength predict about HDFC Bank share price?.

Last five-year data shows that once this ratio starts increasing, it can go as high as two standard deviations above its average before reverting back towards its five-year average.

Most technical analysts employ various types of screening methods to identify the winners. One of the most widely used is a concept called relative strength to judge which securities have the promise. Relative price strength is a reliable concept and has been widely used to find the strength of stocks. One of the most common means of establishing relative strength is called the ratio method. It is merely the ratio between stocks and their index.

It has been witnessed that this ratio of well-established companies keeps on moving around the average. Divergence analysis, trend lines, and even patterns appear in the ratio lines. For example, in the last five years, the average ratio for HDFC Bank has been around 0.0942. A rising ratio shows the strength of the stock. The ratio of HDFC Bank to Nifty 50 after reaching a high of 0.11 on November 10, 2020, saw a steady decline. It reached its recent minimum of 0.085 in September. Now again it is showing a consistent gain and now it is at 0.091, which is below its five year average of 0.0942.

Last five year data shows that once this ratio starts increasing, it can go as high as two standard deviations above its average before reverting towards its five-year average.

Besides, there are fundamental reasons that can help the bank to continue its momentum. For example, on October 6, Moody's has affirmed the long-term local and foreign currency deposit ratings of HDFC Bank, at Baa3. At the same time, their rating outlooks have been changed to stable from negative. The bank also plans to unlock value through the listing of its non-banking subsidiary, HDB Financial Services. The bank is eying a valuation of anywhere between Rs 60,000-67,500 crore in which Bank holds more than 90%.