Buy REC around Rs 212-217; target Rs 260: ICICIdirect

ICICIdirect.com's report on Rural Electrification Corporation (REC)

REC has outperformed the Nifty in the recent index fall of 5 percent. The stock actually moved up 8-9 percent during the same period. As the market is becoming more stock specific and is consolidating in the range of 6000-6250, we may see continuance of the outperformance vis-à-vis index in these stocks in the coming weeks

REC has witnessed continuous closure of open interest since the August series as the stock gained almost 45 percent from the lows clearly indicating closure of short positions. REC still has an open interest base of almost 2.6 million shares, which may continue to propel the stock on the higher side. We recommend accumulating the stock near current levels for a target of Rs 260 in the days to come

Significant delivery volumes were observed in the stock near the price of Rs 195. In the current up move, the stock is finding continuous support near its 50 DMA levels and did not close below these levels for more than a day since September 3, 2013. Currently, the 50 DMA for the stock is placed at Rs 195. Hence, confluences of supports are placed near Rs 195 levels for the stock

The highest Call base for REC in the November series is placed at the 220 strike. We expect another round of short covering in the stock if it is able to sustain above Rs 220 levels. We expect the stock to move towards Rs 260 levels in the coming sessions

Recommendation:
Buy REC in cash in the range of Rs 212-217
Target: Rs 260
Stop loss: Rs 195
Time Frame: Three months

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