Oct 05, 2017 09:07 AM IST | Source:

Small & midcap stocks likely to outperform; 3 stocks which could give up to 30% return in 6 months

Going forward, we expect the broader markets to extend relative outperforming streak while the index extends time wise consolidation phase.

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Todays L/H

Dharmesh Shah

ICICI Research

The Nifty extended gains for the fourth consecutive session even as the RBI left key policy rates unchanged in its fourth bimonthly monetary policy review on Wednesday.

The index has retraced 50 percent of the preceding seven-session decline (10,178-9,688). It has consumed four sessions to recoup the losses incurred in last Wednesday’s session.

The slower pace of up move highlights the corrective nature of the current pullback and corroborates our view of the extension of the ongoing consolidation between the broad range of 9,650 and 10,000 levels.

We expect stock specific action going forward as we enter Q2 earning season.

The index has held the 9650 support on expected lines and given a pullback over the last four trading sessions.

Over the last two months, the market has absorbed geopolitical concerns, slower GDP growth, and FII outflows while holding the 9650 levels making it a crucial value area is the confluence of following:

• Monthly low of August 2017 is placed at 9685
• Previous resistance zone and the breakout area of June 2017 consolidation is placed around 9700 region

• 61.8% retracement of the June - Sept up move is near 9700

The broader markets have relatively outperformed the index during the recent corrective phase as the midcap and small-cap indices retraced their August-September rise by 61.8% while the benchmark completely retraced its preceding up move.

Going forward, we expect the broader markets to extend relative outperforming streak while the index extends time wise consolidation phase.

Here is a list of top three stocks which could give up to 30% in the next six months:

Automotive Axles: BUY CMP – 882 | Target Rs1045| Stop Loss Rs824| Upside 17%| Time Frame 6 month

The share price of Automotive Axles is emerging out of a long-term consolidation phase and presents a good buying opportunity for investors to ride the next up move in the medium term.

After a multi-fold rally in 2013-14 (Rs188 to Rs867), the stock entered into hibernation mode to work off the overbought conditions developed during the sharp Bull Run.

Over the last three years, the stock oscillated between the broad range of Rs800 and Rs550. The price wise and time wise behaviour during the entire consolidation phase highlights the overall robust price structure.

The price wise corrective decline got arrested at the 50 percent retracement of the major Bull Run whereas time-wise, the stock spent almost 34 months under consolidation against the preceding up move, which occurred in just 15 months.

The elongated time wise consolidation and limited price wise correction highlight the overall positive price structure against quantifying this as a healthy corrective phase within the larger degree uptrend.

The strong up move in September saw the stock register a resolute breakout from the three-year consolidation range above Rs800 thereby triggering a structural turnaround implying the end of the secondary corrective phase and resumption of the primary uptrend.

We believe this presents a good buying opportunity for medium term investors to ride the next major up move. We expect the stock to enter into a sustainable uptrend from here on and head towards Rs1050 levels over the medium term.

The measuring implication of the three-year consolidation range (550 to 800=250 points) added to the breakout area of Rs800 projects upsides towards Rs1050 over the medium term

Asian Granito: BUY CMP – 466| Target Rs615| Stop Loss Rs405| Upside – 30%| Time Frame Six months

The share price of Asian Granito India has remained in a secular uptrend since May 2014 as it continues to form a higher peak and higher trough in all time frames.

Within this structural uptrend, the stock has undergone periodic phases of consolidation providing fresh entry opportunities for investors to ride the uptrend.

We believe the sideways consolidation over the last two months has approached maturity and the stock provides a good entry opportunity with a favourable reward/risk set up for medium-term investors to ride the next up move within the larger uptrend

The stock witnessed a strong rally in June-July 2017 rallying from a low of Rs333 to its all-time high of Rs500 in just 7 weeks. Thereafter, the sideways consolidation in the subsequent two months took the pictorial shape of a bullish rounding formation.

The stock registered a resolute breakout from the rounding pattern in mid-September 2017 thereby signalling the end of the secondary corrective phase.

In the present scenario, the stock is seen retesting the neckline of the rounding pattern placed around Rs460 region thereby presenting an incremental buying opportunity.

Considering the robust price structure and above-mentioned technical observations, we expect the stock to continue with its current uptrend and head towards Rs620 in the medium term as it is the measuring implication of the rounding formation being the width of the pattern ( 500-380=120 points) added to the neckline of the rounding formation thus projects upside towards Rs620.

Oriental Hotel: BUY CMP Rs38| Target Rs44| Stop Loss Rs35| Upside 16%| Time Frame 6 months

The key observation on the price chart of Oriental Hotels is that the corrective phase since hitting the lifetime high of Rs48 in May 2017 appears to have approached maturity and the stock offers a good entry opportunity to ride the next up move.

The price wise correction post-May 2017 peak got arrested near the key value area placed around Rs32 region being the confluence of rising 52-weeks EMA and the previous breakout area placed around Rs32 levels.

Time-wise, the last rising segment (Rs20 to 48) occurred in 19 weeks whereas the stock has completed 21 weeks under corrective phase in the current week. Limited price wise correction and extended time wise consolidation highlights the robust price structure.

The stock witnessed base formation precisely at the key value area of Rs32 for over six weeks highlighting accumulation by stronger hands.

The stock has recently resolved higher from six-week base formation range signalling conclusion of secondary corrective phase and resumption of upward momentum.

We expect the stock to head towards Rs44 levels in the coming months being a confluence of July 2017 high and 80% retracement of the May-August fall.

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