Small & Midcap Mantra: This tyre manufacturer almost doubles wealth in 2021; rally not over yet

JK Tyre & Industries, a leading Indian tyre manufacturer, has almost doubled investor wealth so far in 2021, while the Nifty 50 gained over 16 percent and the S&P BSE 500 index rose over 20 percent. Over the past year, JK Tyre shares have more than doubled compared with a 44 percent rally in the Nifty 50 and an over 50 percent gain in the BSE 500 index. With a market capitalisation of more than Rs 3,550 crore, the JK Tyre stock hit a fresh 52-week high of Rs 166 on the BSE on August 6 and witnessed some consolidation. Experts are of the view that it is still a buy on dips and the rally is not over yet. On the technical charts, a positive crossover between its 20-month and 50-month EMAs in June signalled an upside momentum. The stock has rallied more than 20 percent since June and if the current momentum stays, it could touch Rs 193-225 in the next 9-12 months. JK Tyre’s product portfolio includes a range of car, bus and truck tyres. The company posted a consolidated net profit of about Rs 44 crore in the quarter ended June compared with a net loss of Rs 204 crore in the year-ago period.

The stock is trading below short-term moving averages such as the 5-, 10- and 20-day moving averages but above long-term averages such as the 50-, 100- and 200-DMAs. “Since the lowest level of March 2020, the stock has witnessed a rise of over 400 percent (from Rs 31.65 to Rs 164.80),” said Jatin Gohil, a technical analyst at Reliance Securities. “In January 2021, the stock surpassed its key moving averages convincingly. After a pullback, the stock resumed its up-move in April and extended gains thereafter. In June, a positive crossover had taken place between its 20-month and 50-month EMAs.” Historical data shows the stock had risen exponentially after identical crossovers took place between its moving averages. The key technical indicators on the long-term as well as medium-term timeframe charts are in favour of the bulls. “This could lead the stock towards Rs 193 initially and Rs 225 subsequently in the next 9-12 months. In case of any decline, the stock will find support at around its 100-day SMA, which is placed at around Rs 130,” Gohil recommended. “Long position can be initiated at current juncture (Rs 158.65) and on dips (at about Rs 150) for a target of Rs 225 and a stop-loss of Rs 130.”