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Last Updated : Jul 05, 2018 09:03 AM IST | Source: Moneycontrol.com

Seeking value buys? 2 largecaps & 1 midcap that could return 8-24% in next 3-6 months

The index has major support in the range of 10,550-10,600 and any dips towards the support area should be utilised as an incremental buying opportunit, says Dharmesh Shah of ICICIdirect.

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Dharmesh Shah

The Nifty regained positive momentum after the corrective decline seen last week. It witnessed a steady recovery from the major support area of 10,550 levels, despite global volatility. The index has held 10,550 on three occasions during June, in spite of a host of concerns on escalating trade war, depreciating rupee against the dollar and rising crude prices, thus highlighting the significance of this support and resilience.

On the daily chart, the Nifty has formed a higher high and higher low formation indicating positive bias. Going forward, we expect the index to continue its positive momentum and head towards the past two week’s almost identical high of 10,830. Going forward, the focus will now shift to stock-specific action as we enter into the Q1 FY19 earning season.

The index has major support in the range of 10,550-10,600 and any dips towards the support area should be utilised as an incremental buying opportunity as it is a confluence of:

a.) 78.6 percent retracement of the last leg of the rally (10,418-10,893), at 10,520

b.) The 100 day simple moving average is placed around 10,535

c.) The index during June formed multiple lows around 10,550 levels. The previous week’s low is also placed at 10,557 levels

Structurally, broader consolidation in the 10,000–11,172 range since December last year has made the market healthier and created fresh buying opportunities within a larger degree uptrend. Time-wise, the last three legs have taken 7-8 weeks to complete each directional move. Current profit booking from the May high of 10,930 has lasted over 7 weeks.

Going by the market rhythm of each directional move maturing in 7-8 weeks, we expect the current decline to bottom out in the ongoing week, leading the index to form a higher base formation.

The Nifty Midcap and Small-cap indices have declined 18 percent and 28 percent, respectively, from January highs. In the last two sessions, the indices are moving higher and the daily stochastic has witnessed positive crossover from oversold territory.

Such price action, after a panic decline, is likely to bring a breather in downward momentum in coming sessions. The key point to observe is that an improvement in the market breadth which would confirm that these indices are gradually entering a base formation.

Here is a list of top three stocks which could 8-24% return in the next six months:

Marico: Buy| CMP: Rs 343| Target: Rs 370| Stop Loss: Rs 324| Return 8%| Time frame: 3 months

The share price of Marico has witnessed a sharp rebound from the May 2018 low of Rs 305 and is seen forming a higher peak and higher trough on the weekly chart.

The recent price activity signals a major trend reversal offering a fresh entry opportunity for medium-term investors.

Over the past ten months, the stock has been consolidating in a broader range of Rs 335–300. This overall consolidation has taken the shape of a contracting triangle pattern, indicating tapering range bound activity.

The stock has recently recorded breakout from aforementioned contracting triangle pattern and is seen sustaining above the same signalling conclusion of the secondary phase of consolidation.

The stock retraced its 2016-17 up move by 50 percent (Rs 292) and formed a base formation near lows of March and May 2017 around Rs 300, indicating accumulation by stronger hands at the major retracement support.

The immediate short-term support is placed around Rs 324 levels being the confluence of the trendline support joining recent lows and 50 percent retracement of the last major up move (Rs 304-352).

Based on the aforementioned technical evidence, we believe that the stock has formed a higher base as it broke out of contracting triangle pattern, signifying continuance of uptrend.

Therefore, it offers an opportunity to ride the same with the favorable risk-reward setup. The stock is likely to head towards Rs 370 being the measuring implication of the consolidation breakout (335-300=35 points) added to the breakout level of Rs 335, projects upside towards Rs 370 (335+ 35=370).

GlaxoSmithKline Pharmaceuticals: Buy| CMP: Rs 2,902| Target: Rs 3,490| Stop loss: Rs 2,590|Return 20%| Time frame: 6 months

The share price of GlaxoSmithKline Pharmaceuticals has recently registered a breakout above the falling channel containing the entire corrective price activity of the last two years signalling a reversal of the corrective trend and resumption of the fresh up move, thus offering a fresh entry opportunity from a medium-term perspective.

The stock has formed an all-time high of Rs 3,872 during April 2016. A corrective decline of the last two years saw the index form a base around Rs 2,020 during March 2018.

A sharp pullback in the last three months from the lower band of the falling channel containing the entire corrective decline saw the index forming a higher peak and higher trough in the weekly chart signalling a resumption of the uptrend.

The immediate support base for the stock is around Rs 2590 being the confluence of the 50 days EMA and 38.2 percent retracement of current up move (2020-2870).

Time-wise, the stock has recently retraced its five months corrective decline from Rs 2700 to Rs 2020 in just three months. A faster retracement of the last falling segment signals a robust price structure.

The breakout from the long-term falling channel was accompanied by a strong volume of almost three times the 50-weeks average volume of 51,000 shares per week indicating elevated participation in the direction of the trend.

Based on the aforementioned technical observations, we expect the stock to continue its positive bias and head towards Rs 3,500 as it is the 80 percent retracement of the entire decline (3872-2020)

Maharashtra Seamless: Buy| CMP: Rs 439| Target: Rs 548| Stop loss: Rs 402| Return 24%| Time frame: 6 months

The stock witnessed a structural turnaround in the August 2017 as it registered a resolute breakout from multiyear (7 years) resistance zone (Rs 420). Thereafter, the stock has consistently moved northwards and recorded 52-weeks high of Rs 552.

We believe the sideways consolidation over the past three months has laid the foundation for the next leg of up move within a structural uptrend.

The entire corrective decline since January 2018 high (Rs 552) appears to be forming a falling wedge pattern. The occurrence of falling wedge pattern near crucial support area signifies bullish trend reversal which offers a fresh entry opportunity as a breakout from falling wedge would indicate the end of the secondary corrective phase and resumption of the primary uptrend.

We believe the stock has been forming a strong support base formation around Rs 415 levels, as it is a confluence of:

a.) 38.2 percent retracement of 2016-17 move (213 - 552), placed around Rs 415

b.) as per change of polarity concept, the earlier resistance of Rs 420 has now acted as key support, as the stock is forming potential double bottom formation near Rs 420 levels.

Based on the aforementioned technical parameter, we expect the stock to head towards Rs 550 as it is the implicated target of recent consolidation (485-415=70) added to breakout level (485+70=555) corroborating 52 weeks high of Rs 552.

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.
First Published on Jul 5, 2018 09:03 am
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