Buy Marico, target Rs 370: Dharmesh Shah

Marico | LIC increased stake in company to 4.8 percent in September quarter, from 3.66 percent in June quarter.

Dharmesh Shah

Marico has witnessed a sharp rebound from the May 2018 low of Rs 305 and is seen forming a higher peak and higher trough on the weekly chart.

The recent price activity signals a major trend reversal offering a fresh entry opportunity for medium term investors.

Over the past ten months, the stock has been majorly consolidating in a broader range of Rs 335–300. This overall consolidation has taken the shape of a contracting triangle pattern, indicating tapering range bound activity.

It has recently recorded breakout from aforementioned contracting triangle pattern and is seen sustaining above the same signalling conclusion of the secondary phase of consolidation.

The stock retraced its 2016-17 up move by 50 percent (Rs 292) and formed a base formation near lows of March and May 2017 around Rs 300, indicating accumulation by stronger hands at the major retracement support.

The immediate short term support is placed around Rs 320 levels being the confluence of the trendline support joining recent lows and 50 percent retracement of the last major up move (Rs 285-352)

The momentum indicator has seen a range shift as weekly RSI recorded breakout from eight months high of 63, indicating renewed buying interest that augurs well for next leg of up move.

Based on the aforementioned technical evidence, we believe the stock has formed a higher base as stock to resolve out of contracting triangle pattern, signifying continuance of uptrend.

Therefore, it offers an opportunity to ride the same with favorable risk-reward setup. The stock is likely to head towards Rs 370 being the measuring implication of the consolidation breakout (335-300=35 points) added to the breakout level of Rs 335, projects upside towards Rs 370 (335+ 35=370).

Disclaimer: The author is Head Technical, AVP at ICICI Direct.com Research. The views and investment tips expressed by investment experts on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.