Will Bajaj Housing Finance's IPO fuel growth in other housing finance stocks?

But how many of these IPO applicants can truly be called investors? A large portion of the market is traders, driven by the promise of quick gains rather than long-term value.Are you one of them?

Bajaj Housing Finance debuted with an exceptional gain of 135% to close its first trading day at ₹164.99, prompting the question: will this fuel growth in other housing finance stocks?

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Given the promising signs from the sector, we believe it may. Below, we examine three housing finance stocks showing bullish momentum. But before we get to them, it’s crucial to analyse the performance of the Nifty Realty Index, the backbone of this sector.

Nifty Realty Index: setting the stage for housing finance

The Nifty Realty Index has consistently outperformed since 2022, signaling a strong bull market in the real estate sector.

The index's multi-year breakout in late 2021 was retested in early 2022, after which the bulls took control, pushing the index from 350 to over 1,100.

A series of higher highs and higher lows, a classic Dow Theory signal, confirmed the bull run. The upward slope of the 50-week exponential moving average (50WEMA) and the 200WEMA is further evidence of a strong trend.

The surge in realty stocks, driven by rising demand and improving sales, has laid the solid foundation for housing finance companies to grow, making this sector one to watch closely.

Let’s now turn our attention to three housing finance stocks that are breaking out.

1. PNB Housing Finance: a new bullish cycle

PNB Housing Finance, backed by Punjab National Bank, has been a key provider of home loans and caters to a broad segment of the population.

The stock has been in a prolonged consolidation phase, forming a multi-year bottom on the weekly chart. The formation of a rounding bottom pattern, a long-term bullish signal, marked the stock’s transition from a period of decline to one of growth.

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Following the rounding bottom, the stock developed a cup and handle pattern—a classic continuation pattern that signals the stock’s readiness for a breakout. What caught my eye was the increasing volume during the handle formation, indicating accumulation by smart investors. This is a strong signal that the stock is potentially entering new, bullish territory.

2. Can Fin Homes Ltd: breaking out of multi-year resistance

Can Fin Homes Ltd, another of India's leading housing finance companies, has been a strong performer, providing affordable housing loans to a wide range of customers. Backed by Canara Bank, the company has established itself as a reliable lender with a solid track record of growth.

Can Fin Homes has shown impressive strength, breaking out of a multi-year resistance zone between 660 and 715 on the weekly chart. After retesting this zone the stock continued its upward trajectory, reflecting strong bullish momentum.

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The subsequent breakout suggests that the bulls are firmly in control, pushing the stock into zero-resistance territory. With no immediate overhead resistance, the stock price is in prime position to potentially continue its upward journey. It is backed by robust fundamentals and improving conditions in the real estate and housing finance markets.

3. Repco Home Finance: a classic double bottom breakout

Repco Home Finance, a niche player in the industry, focuses primarily on providing home loans to underserved and semi-urban areas. Despite facing headwinds from rising interest rates and macroeconomic challenges, the company now shows strong signs of a recovery.

Repco Home Finance’s chart offers a textbook example of a double bottom pattern, a powerful reversal signal that suggests the stock has found strong support and is poised for a bullish reversal. This pattern often signifies the end of a downtrend and the beginning of an upward move.

The breakout from the double bottom was further strengthened by a golden cross — a bullish crossover of the 50WEMA above the 200WEMA. This is a critical technical signal, reinforcing the bullish outlook for the stock. Additionally, the formation of higher highs and higher lows post-breakout confirms that the worst is over for Repco Home Finance, and the stock will potentially continue its upward trajectory.

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The Bajaj Housing Finance IPO has put the spotlight on other stocks in the sector. After a period of underperformance due to rising interest rates, the housing finance market is now showing signs of recovery, particularly on the technical charts of PNB Housing, Can Fin Homes and Repco Home Finance.

Be sure to track these stocks in the days, weeks and months ahead to see how this plays out.

Note: The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only.

Brijesh Bhatia has more than 18 years of experience in India's financial markets as a trader and technical analyst. He has worked with the likes of UTI, Asit C Mehta, and Edelweiss Securities. Presently he is an analyst at Definedge.

Disclosure: The writer and his dependents do not hold the stocks/commodities/cryptos/any other asset discussed here as per Sebi guidelines. However, clients of Definedge may or may not own these securities.