Podcast | Stock picks of the day: Here’s why HCL Tech and HUL could give double-digit returns

Any dip from hereon should be capitalised to accumulate quality defensive stocks amid Q3FY19 result season. Structurally, we believe broader structure stays positive as price wise the Nifty maintains the rhythm of not retracing more than 61.8 percent of preceding major up move.

We believe a base formation in the broader range (10,700–10,500) would set the stage to challenge the upper band of consolidation (11,000) in the coming weeks. The 10,500 level remains key support.

Here is a list of two stocks that could give 11-13 percent return in the next 6 months:

HCL Technologies: Buy| LTP: Rs 1,006| Target: Rs 1,125| Stop loss: Rs 935| Upside: 11 percent| Time frame: 6 months

HCL Technologies is one of the leading Indian IT service company with an employee count of 1.32 lakh. We believe, base formation at the lower band of three year’s long rising channel augurs well for next leg of an up move towards Rs 1,125. Hence, it offers fresh entry opportunity with a favourable risk-reward set-up.

The past three years’ price action has been captured in a well-defined upward sloping channel (drawn adjoining subsequent higher lows of 2016 at Rs 708 and Rs 736 and projected from August 2016 high Rs 858).

Recently, prices found support from a lower band of the aforementioned channel around Rs 930 coinciding with 78.6 percent retracement of the last major up move Rs 880 – Rs 1,125) at Rs 932. Thus we believe, any corrective move towards Rs 935 should be used as a buying opportunity.

Structurally, over the past four months, prices have retraced 78.6 percent of earlier four months up move (Rs 880 – Rs 1,125). Limited price wise correction along with equivalent time-wise consolidation signifies robust price structure that bodes well for next leg of the up move.

In a nutshell, we expect the stock to resolve higher and head towards our earmarked target of Rs 1,125 in the coming months as it is the upper band of rising channel placed around Rs 1,135 coinciding with 127.2 percent external retracement of the last leg of decline (Rs 1,066 – Rs 920) at Rs 1,105.

Hindustan Unilever: Buy| LTP: Rs 1756| Target: 1,995| Stop loss: Rs 1,645| Upside: 13 percent| Time frame: 6 months

FMCG universe continues to remain on strong footing as the majority of the stocks remain in a secular uptrend. In two out of three instances, the FMCG index performed well ahead of general election.

The last three months price action has been taking shape of a flag formation. The flag is a bullish continuation pattern. Over past seven weeks, prices have retraced 38.2 percent of last ten weeks up move (Rs 1,477 – Rs 1,870) placed at Rs 1,720. Shallow price retracement along with slower time correction signifies inherent strength that augurs well for next leg of the up move.

Thus we believe, corrective decline towards Rs 1,650 should be used as buying opportunity as it is:
a) An upward sloping trendline drawn adjoining lows of December 2016 – March 2018 of Rs 782 – Rs 1,281 placed around Rs 1,655
b) 50 percent retracement up last major move (Rs 1,477 – Rs 1,870) placed at Rs 1,673

The aforementioned technical evidence makes us believe, the stock would resolve out of bullish flag pattern and head towards Rs 1,995 in coming months as it is price parity of previous up move (Rs 1,809 -Rs 1,284) projected from October 2018 low of Rs 1,477.

The author is Head Technical, ICICIdirect.com Research.

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