Moneycontrol
Feb 15, 2018 11:04 AM IST | Source: Moneycontrol.com

Looking for quality stocks? 3 stocks which could give up to 16% return in next 6 months

We expect base formation around the support area will make the market more healthier and pave the way for next leg of upmove.

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Dharmesh Shah

Equity benchmarks consolidated within last broad range on Wednesday of 10,600-10,300 seen in the last five sessions which indicate consolidation after the recent sharp decline of 8 percent in last two weeks.

The index rebounded from the oversold territory and retraced the previous decline by 38.2 percent, however, the pullback was shallow as it has already taken five sessions to has retraced just 38.2 percent of the previous six-session decline (11,172 -10,276).

Thus, the slower pace of retracement of the last leg of decline makes us believe that index will continue to consolidate in a broad range of 10,600-10,300 amid stock specific action, before taking a further directional move.

Going ahead, only a decisive close above 10,600 would open up room for further upside. Whereas, intermediate support remains around 10,300, as it is the confluence of:

The upwards rising trendline joining the lows of September 2017 (9,688) and December 2017 (10,033) currently placed near 10,350 levels

The 80 percent retracement of the recent rally of 10075–11172

Structurally, since 2010 on few instances it has been observed that, after seven to nine weeks of consecutive bull candle characterised by higher high – low formation, post which market has a tendency to enter into intermediate corrective phase which does last for two-four weeks with correction in the range of 9-12 percent after which the primary uptrend resume.

In the present scenario, market has formed higher high – low for consecutive seven weeks (starting from Dec 17 – Jan 18) followed by correction of 8 percent in the last two weeks.

As the index has already seen an 8 percent decline from the all-time high of 11,171, we believe the downside seems to be limited and it offers fresh buying opportunity with favourable risk-reward around the major support region of 10,300-10,100.

We expect base formation around the support area will make the market more healthier and pave the way for next leg of upmove.

In the last week even while the benchmark indices were trading in a range, the market breadth was strong as heavily beaten down midcap and small cap indexes post its recent sharp decline (almost 15 percent & 20 percent respectively) in last four week’s witnessed a pullback.

The demand support at lower levels across the broader markets, validates the presence of buoyancy at the key value area of 10,100 – 10,300, being the Gujarat Election panic low of 10,075, corroborating with the placement of 200 DMA at 10,053. Thus, any dip towards 10,100 -10,300 regions should be capitalised to accumulate quality stocks in a staggered manner

Here is a list of top 3 stocks which could give up to 16% return in the next 6 months:

Reliance Industries: BUY CMP – 933.00 Target – 1070.00 Stop Loss – 865.00 Upside – 15% Time Frame 6 months

The share price of Reliance industries has been consolidating between the range of 970 and 870 in the last four months thus forming a base for the next up move. The stock is currently placed near the lower band of the recent consolidation thus providing fresh entry opportunity to ride the next up move in the stock

The overall positive structural trend still remains intact as the five weeks of a rally during September to October 2017 from Rs785 to Rs960, went through nine weeks’ time wise correction, got retraced by 50% of the entire leg of up move.

The limited price wise correction corresponding to elongated time correction shows inherit strength and foretell positive momentum, going ahead

Among the oscillators the daily stochastic has generated a bullish crossover above its nine period’s average thus supports the positive bias in the stock in the short term

The above-mentioned technical evidence suggests the four months’ consolidation is likely to conclude, in turn, giving a fresh entry opportunity.

We expect the stock to move higher towards the projected target of Rs1070 in the medium term being the price equality of the last leg of up move from Rs779– 958 as projected from the recent trough of Rs895

Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.

Bajaj Finance: BUY CMP – 1670.00 Target – 1880.00 Stop Loss – 1592.00 Upside – 12% Time Frame 1 months

The share price of Bajaj Finance is in a secular uptrend and has formed an all-time high of 1985 during September 2017.

The stock since then has seen a corrective decline in the last five months and is currently placed near major support area thus provides fresh entry opportunity.

The stock in the last two weeks is forming base around the major support area of Rs1550 as it is the lower band of the rising channel placed since mid-2016 and the 52 weeks EMA currently placed at Rs1562 levels

The stock after the current consolidation is likely to head higher towards Rs1890 levels being the 80% retracement of the entire decline (Rs1985 to 1511)

The weekly stochastic has generated a bullish crossover above its three period’s average thus supports the positive bias in the stock in the short term

NCC Limited: BUY CMP – 126.00 Target – 147.00 Stop Loss – 115.00 Upside – 16% Time Frame 1 months

The share price of NCC undergone a secondary consolidation phase in the last one month and has recently witnessed a sharp rebound from the major support area Rs102 as it is the 61.8% of the last leg of rally from Sept 2017 – Jan 2018 of Rs81 – Rs141, placed around Rs104 levels which also coincides with the 200 DMA placed at Rs101.

The stock during the current week has registered a resolute breakout above the downward sloping trend line is drawn adjoining highs of 10th January 2017 (141) and 25th January 2017 (132) currently placed at Rs120 levels.

The breakout was accompanied by strong volumes of more than four times the 200 day’s average volume of 51 lakhs share per session, indicating positive bias and resumption of primary up trend

The stock is likely to head higher in the near-term towards Rs147 levels being the 123% external retracement level of the current decline (Rs141- Rs102), while support remains near 50% retracement level of current up move (Rs102 – Rs130) placed around Rs115

Disclaimer: The author is Head Technical, AVP at ICICI Direct.com Research. The views and investment tips expressed by investment experts on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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