The stock price of Greaves Cotton, a diversified engineering company, has almost doubled investors’ wealth so far in 2021, compared to the 13 per cent rally seen in the Nifty50, and about 18 per cent gain in the S&P BSE 500 index.
On a one-year basis too, Greaves Cotton has outperformed the benchmark index, advancing about 92 per cent, compared with an over 50 per cent gain in the Nifty and a 60 per cent increase in the BSE 500 Index.
With a market capitalisation of about Rs 4,000 crore, Greaves Cotton hit a fresh 52-week high of Rs 184.25 on June 24, 2021, and experts feel that the momentum could well take the stock closer to the Rs 250 levels in 6-12 months.
Long-term investors can look at holding the stock for another 6-12 months as the recent breakout, if not met with any meaningful selling pressure on the upside, can take the stock higher.
The stock saw a breakout above Rs 165, which was recorded back in 2017 for the first time in June 2021 on the weekly charts. It made five unsuccessful attempts to clear the resistance zone in the last four years, but bears overpowered bulls and pushed the stock price lower.
Greaves Cotton is one of the most diversified engineering companies in India with core competencies in diesel/petrol engines, diesel generator sets, auto spare, farm equipment, e-mobility, aftermarket spares and services.
Breaks resistance at long last
“On the weekly chart, Greaves Cotton clearly shows a crystal-clear breakout from the major resistance. The breakout has occurred above the Rs 165-mark and the stock has managed to close well above the same. Since April 2017, the stock made more than five attempts to clear this hurdle, but this time it succeeded,” Mehul Kothari, AVP, Technical Research, AnandRathi, said.
The price action was supported by extraordinary volumes, which is a positive sign for the bulls as it confirms the strength of the breakout.
The kind of volumes with which the stock has rallied is clearly evident on the weekly chart. However, if we go into a lower degree i.e., the daily scale, it can be seen that the volumes were 10x-20x the recent average volumes.
RSI alert: Fresh rally ahead
“Generally, such kind of participation, along with a multiyear breakout, results in a strong price action in the months to follow. As per price action, even if we go by the size of the breakout, the minimum target for the stock comes to around Rs 250 in the medium term,” suggested Kothari.
A target of Rs 250 would result in an upside of over 40 per cent from the current levels of Rs 169, recorded on June 25, 2021.
Also, the weekly RSI (14) has retested its breakout trend line and has turned higher. This suggests a possibility of a fresh rally, going ahead.
“Thus, as per the discussed technical evidence, we are of the opinion that, at this zone, the stock is a decent candidate to go long for an upside target of Rs 245 with a stop-loss of Rs 125. The time frame for the same could be between 6-12 months,” recommends Kothari.
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