Buy Oil India around Rs 480-467; target Rs 580: ICICIdirect

ICICIdirect.com is bullish on Oil India and has recommended to buy the stock in the range of Rs 480-467 for a target price of Rs 580 with a stop loss below Rs 425 on a closing basis, in its report dated January 14, 2013.

"Since its debut on the bourses in October 2009 the share price of Oil India has found tremendous buying cushion around the listing price levels of Rs 425-430 range. The stock posted its first major rally from a low of Rs 425 in May 2010 to register an all-time high of Rs 626 levels towards mid-September 2010. The market wide decline during November 2010–December 2011 period saw the stock wipe out the entire gains of the May-September 2010 rally. The 47% rally from Rs 425 to Rs 626 came in just five months while the ensuing decline, which wiped out all gains, consumed over 14 months. The slow paced decline highlights a counter trend move.

The most dominating pattern on Oil India’s price chart is the potential Triple bottom bullish reversal pattern formed at a crucial support of Rs 425-430. The stock rallied from a low of Rs 425 in November 2011 to a high of Rs 540 in February 2012 before reversing to form two more distinct lows around Rs 430 levels during May 2012 and December 2012. A triple bottom formation is a bullish reversal pattern that signals an end of a bear phase and start of a new bull run.

The up move post hitting the third distinct low at Rs 430 in December 2012 has seen the stock pierce through the downward sloping trend line, which has acted as a key supply zone since September 2010 till date. The violation of more than two year old resistance trend line with strong volumes indicates a shift of momentum in favour of bulls and augurs well for the stock price from a medium-term perspective. Following the breakout, we expect the stock to enter a bullish trajectory. An eventual move to challenge its life-time highs may not be ruled out in the long run. From a medium-term perspective, we expect the stock to retrace the 2010-11 fall (626-425) by at least 80% projecting an upside towards 580 levels.
 
The 14 period RSI on a weekly time scale has itself formed a triple bottom by sustaining above the bull market support of 35-40 during the entire triple bottom formation on the price front. The price breakout has seen the 14 week RSI also turn northwards and move out of its consolidation range above 60  suggesting strength in the breakout.

Strategy: Buy Oil India in the range of Rs 480 – 467 for a target price of Rs 580 with a stop loss below Rs 425 on a closing basis.

Oil India is a Navratna PSU, a pioneer and Asia's oldest & biggest oil exploration & production company," says ICICIdirect.com research report.

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