HDFC Life Insurance Company, Bandhan Bank and Info Edge will be included in the Futures & Options segment effective February 28, and anecdotal evidence suggests that after such inclusion most stocks rise in double digits.
The list of stocks under the F&O segment will go up to 143 from 140 from February 28, when the March series begins.
Most of the top stocks, barring Can Fin Homes, added to the F&O segment have risen in double digits since their inclusion. Bajaj Finserv tops the list. It has more than doubled investors’ wealth since 2017.
Berger Paints has also more than doubled investors' return since April 2017. Double-digit gains have also been seen in Balkrishna Industries and Mahanagar Gas.
“Out of the above stocks, 80% of the stock traded thinly and in narrow range band of 5-10% for almost three months and post that, they performed fairly well and gained nearly 25-30% in the next three months,” Rajesh Palviya, Head – Technical and Derivative Research, Axis Securities Ltd, told Moneycontrol.
“In the last two years, when the market was trading in an uptrend, most of the stocks which have been included in the F&O segment have moved up…,” he said.
Going by records, a new entrant is most likely to have an upward move in the coming months, provided the market also trades upwards, Palviya said.
A stock is usually added to the F&O segment after analysing its daily traded value and average daily market capitalisation for six months.
HDFC Life, Bandhan Bank, and Info Edge witnessed a surge in their share price on February 25 after NSE’s announcement about their inclusion.
Technical take on the stocks to be included in the F&O segment:
Expert: Gaurav Ratnaparkhi, Senior Technical Analyst, Sharekhan by BNP Paribas:HDFC Life: Accumulate| Target Rs 758
HDFC Life had an excellent rally in 2019. It witnessed eight consecutive positive months from March to October. After registering an all-time high of Rs 646.40 in October, the stock has been in correction mode.
Structurally the correction, which is in its fourth month, seems to be nearing maturity. In terms of the Fibonacci retracement, the stock has retraced 38.2% of the previous multi-month rally.
The weekly chart shows that the stock is forming a base near the 40-week exponential moving average, and the weekly lower Bollinger Band. So, this is an opportunity to get into the stock from medium to long-term perspective.
One can accumulate the stock in the range of Rs 555-Rs 575. A fresh leg of the rally, which looks around the corner, can surpass the all-time high with the medium-term target placed at Rs 758.
Info Edge: Buy on dips in the range of Rs 2,400-2,330
Info Edge has seen a multi-year rally with several wave extensions on the way up. In the current month, it made an all-time high of Rs 3,130, however, it reversed sharply thereon and is now set to close the month in the red.
With the recent decline, the stock has broken its crucial short-term supports, including a rising trendline. The short-term momentum indicators are in line with the fall.
The weekly momentum indicator is showing a negative divergence, which is a bearish sign. All these observations suggest that the stock has some more distance to travel on the downside before it settles down.
On the downside, Rs 2,400-2,330 is the crucial support zone, where the stock can form a base before resuming the larger uptrend.
Bandhan Bank: Good long-term opportunity
Bandhan Bank is in a downtrend on various time frames. The stock is witnessing the fourth straight month of decline. At the current level, the stock is trading below its crucial short-term as well as medium-term moving averages.
Overall, the wave structure shows that the fall is incomplete on the downside, and the stock can tumble down to test the October 2018 low of Rs 368.
So as per the technical study, it is recommended to stay away from this counter, both from trading as well as an investment perspective
However, some experts do feel that the stock could be a good long-term bet after the recent correction.
Santosh Meena, Senior Analyst, TradingBells, is of the view that Bandhan Bank is going through a bear phase but the overall growth potential for this counter is bright where it is trading at attractive valuation after a big correction.
“Investors can accumulate this counter for a longer-term perspective, where we can expect a level of 500 in the next three to six months,” he said.
Fundamental view on the stocks to be included in the F&O segment:
Expert: Gaurav Garg, Head of Research at CapitalVia Global Research Limited-Investment Advisor
HDFC Life reported a VNB (value of the new business) of 45 percent and a solvency margin of 195 percent (above the regulatory requirement of 150%) in its previous quarter.
VNB is a measure that indicates the present value of expected future earnings from new policies. HDFC Life’s embedded value grew 19 percent on a YoY basis and assets under management (AUM) grew by 16 percent YoY.
All the above factors indicate that the stock seems to be fundamentally strong and may turn out to be bullish in the upcoming trading sessions supported by its inclusion in the F&O segment.
The slowdown in the IT sector and prolonged stress in the real-estate sector has impacted Info Edge’s performance in Q3 2019. These two segments accounted for 90 percent of its revenues. It posted a consolidated loss of Rs 62.1crore.
The consolidated income increased to Rs 359.7 crore in the October-December period. The firm is taking various initiatives to expand its business across segments in new geographies.
For instance, the firm’s investment in “Coding Ninja’s and Qyuki” may turn out to be beneficial. Investors must keep a close watch on the IT sector as well as the real- estate sector before investing in Info Edge.
Bandhan Bank reported a net profit of 120.85 percent and NIM of 7.9 percent. The net interest income (NII) increased by 37.10 percent and non-interest income by 52.99 percent.
The company added 7.3 lakh customers during the December quarter. The collection efficiency of this bank has also improved from 99% to 99.12%.
Loan closures are also as important as demand for new loans. All the above factors indicate that the performance of Bandhan Bank is improving.
Historically, the inclusion of stocks in derivatives leads to less volatility and arbitrage opportunities. Traders would get the opportunity of swing trading and hedge their position via derivative instruments.
Disclaimer: The views and investment tips expressed by experts on moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.