Manali Bhatia of Rudra Shares & Stock Brokers said for medium term, 10,000-9,950 is still a major support with more than 51 lakh contract of cumulative open interest
Rudra Shares & Stock Brokers
The time is ripe for accumulating value and quality stocks. Wariness is likely to subsist as FII buying is yet not tenacious. Moreover, the contraction of PMI (Purchasing Manager's Index) number for China, falling of Yuan against the US dollar and lengthening of trade war is creepy.
Hence, we expect in the next couple of weeks, the global and domestic market to remain uncertain. We plug in pharma and corporate banking sectors where one can start accumulating.
Dalal Street celebrated the pre-Diwali rally amid weakening crude oil prices and strengthening rupee. Bulls defended the previous swing low and strong support of 9,951 to reclaim the lost ground and Nifty closed with the weekly gain of 5.2 percent at 10,553.
The market is likely to trade in 10,755-10,350 range in the truncated week. Put writing in 10,600 strike price with 5.5 lakh of change in open interest and call unwinding in 10,600 strike price of 3.7 lakh contract suggests optimism of bulls and mild accumulation.
Call writing has shifted towards 10,900 strike price suggesting resistance is shifting upwards. For medium term, 10,000-9,950 is still a major support with more than 51 lakh contract of cumulative open interest.
A gap exists on the technical chart at 10,750-10,850 level suggesting bulls might try to approach these level. However, cautious approach is required at higher levels as any reversal after approaching 200 DMA (10,765) and filling the gap will be sharp.
Being the 38.2 percent retracement of previous week range, 10,350 will act as a support for this week. VIX ended lower by 5 percent at 18.83 indicating lower volatility as compared to previous few sessions.
Key events to watch for in the week - the Nikkei Services PMI data, bank loan and deposit growth for India, crude oil inventory after the US sanctions on Iran.
Here are top four stocks which could give double-digit returns in short to medium term:
ICICI Lombard General Insurance: Buy | CMP: Rs 840 | Target: 961 | Return: 14 percent in medium term
Gross direct premium income (GDPI) grew 11.25 percent YoY as against industry growth rate of 13.3 percent in Q2FY19, in line with management’s stated strategy to pursue only profitable growth.
Improvement in operating metrics was driven by a reduction in expense ratio (net) to 21.3 percent in the first half of FY19 from 24.3 percent in H1FY18. Investment leverage (net of borrowings) was 3.77x end September 2018 as compared to 3.93x end September 2017.
Going forward, rising interest rates will benefit the insurer as almost 80 percent of its book consists of fixed income securities. The company is well-positioned to deliver 15 percent GDPI growth in line with the industry over next 2-3 years by leveraging its parent’s brand equity, diversified product mix, granular focus on niche segments within motor and health insurance and strong/productive distribution network.
Due to its superior underwriting standards, high ROE, healthy investment book, high solvency ratio, low capital allocation risk and being the first non-life insurance player, it can have an advantage over others.
In the absence of suitable and comparable listed peer ICICI Lombard, deservedly, is trading at a premium compared to other general insurance players. While the premium valuation will sustain, near term upside in stock price is limited.
Sequent Scientific: Buy | CMP: Rs 52 | Target: Rs 61 | Return: 17 percent in medium term
The company reported robust 27 percent growth in revenue. API business grew 40.4 percent whereas formulations business grew 22.7 percent in Q2FY19. Led by improved performance across all business verticals, margin expanded by 310 basis points. This has resulted in a four-fold increase in profitability for the quarter.
Also, it has acquired EU-GMP API facility at Mahad for Albendazole and Ricobendazole products, which will accelerate the API business ahead. Four new products will be validated in both the US and EU. Moreover, in the formulations business, five new product validations are planned (including two injectables) by Sequent.
Given guidance of high revenue growth and 200 bps margin expansion in FY19, Sequent is on track to achieve the same.
Bata India: Buy | CMP: Rs 1,006.65 | Target: Rs 1,120 | Stop loss: Rs 935 | Return: 11 percent in short term
The stock is trading with higher top and bottom formation on the weekly chart since 2017 and has retraced till 38.2 percent in recent fall. Plus, it has respected the previous swing top of Rs 832 and bounced back sharply from support range.
It has taken support near 200-DMA on the daily chart and formed a Double Bottom pattern. RSI is moving into positive territory suggesting the momentum is likely to continue. Crossover of important exponential moving average makes it an attractive buy for short term.
Federal Bank: Buy | CMP: Rs 82.4 | Target: Rs 94 | Stop loss: Rs 77 | Return: 14 percent in short term
The stock is trading with higher top and higher bottom formation on monthly chart and has taken support of rising trend line in October. Weekly and daily charts have witnessed a falling channel breakout suggesting the stock is likely to gain momentum on the upside.
Moving average crossover on the daily chart is giving a buy signal. Monthly RSI indicates that stock is bouncing from a long-term support and making it lucrative buy for a short-term gain.
Disclaimer: The author is a Senior Research Analyst at Rudra Shares & Stock Brokers Ltd. The views and investment tips expressed by investment expert 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.Disclosure: Rudra or its research analysts, or his/her relative or associate do not have any direct or indirect financial interest(except Sequent scientific Ltd.) nor any other material conflict of interest at time of stock recommendation, in the subject company. Also, Rudra or its research analysts, or his/her relative or associates do not have actual/beneficial ownership of one percent or more securities of the subject company. However, Rudra or its research analysts, or his/her relative or associate may have positions in Futures & Options.