Thursday, 4 January 2018

Eye on mid & smallcaps! Top 3 stocks which could give up to 21% return in 6-12 months

We believe that any correction from hereon should be used as an incremental buying opportunity as Q3FY18 earnings expectations and Budget expectations would influence investor sentiment.

 INTRADAY FREE COMMODITY TIPSDharmesh Shah
ICICI Direct.com Research

The Nifty after a strong up move during October 2017 from 9,687 to 10,490, underwent a correction that lasted for about 4 weeks. During this time, the index declined to 10,033.

This correction was almost 61.8 percent of its preceding up the leg (9,687-10,490). Since registering this low, in just three weeks the index has crossed its prior peak of 10,490 and gone on to make a new lifetime high of 10,552.

Faster retracement of the entire fall (10,490-10,033) suggests that the new price objective of Nifty is 10,836, a level that would mark equality of rally from 9,687 to 10,490 as projected from 10,033 levels.

Two significant observations that underscore our bullish stance are:

1) The index took it in its stride a host of negative developments during the recent correction like rising crude oil prices amid tightening global supplies, rise in domestic price pressures due to a spike in inflation, tone down in expectations of a rate cut from the RBI, muted FII inflows, and a slowdown in industrial growth. Despite all these developments, the Nifty has held on firmly above the 10,000 psychological support, underpinning the overall robustness of the price structure.

2) The outperformance of midcap/small cap stocks during the correction points towards a positive underlying sentiment. INTRADAY COMMODITY FREE TIPS

We believe that any correction from hereon should be used as an incremental buying opportunity as Q3FY18 earnings expectations and Budget expectations would influence investor sentiment.

Prior to the Nifty hitting a record high last week, broader markets were already quoting at their life-time highs, as replicated by the NSE Midcap 100 and Smallcap 100 indices.

Moreover, while the Nifty made a lower low between mid-November and early-December, neither the midcap nor the Smallcap index confirmed these developments in the Nifty as they formed higher lows.

All these points to a robustness in the bullish trend of the broader markets. This is something which we believe also bodes well for benchmark indices.

Based on recent price developments, we have revised our support higher from 10,000 to 10,200 as it is the confluence of:
 61.8% retracement of rally from 10,033 to 10,548 is 10,230
 Support point of the trend line connecting the December 2016 and September 2017 lows is around 10,210

Here is a list of top 3 stocks which can give up to 21% in the next 6-12 months:

EIH Ltd: BUY CMP – 149| Target Rs180| Stop Loss Rs125| Return 21%| Time Frame 12 months

Post retracement of 50% of earlier major fall of January 2008 – August 2013 the share price of EIH limited had been oscillating in a broader range of 91- 137 for more than two years.

In the second quarter of CY17, stock logged a resolute breakout above the upper band of the range and has been consolidating above the breakout level in the last three months signalling strength in the breakout and provides fresh entry opportunity.

The sharp rebound from the December 2016 low of Rs91 has seen the stock completely retrace its preceding 24 months down fall (Rs138 to Rs91) in just 5 months, thus confirming a faster retracement.

Faster retracement of the last consolidation highlights the strong demand emerging at the major breakout level. The monthly momentum indicator MACD (E-12/26/9) found support from zero levels and now inching upward indicating strength in the current momentum

We believe the current consolidation above the breakout area of Rs138 is a positive sign confirming strength in the price breakout as the stock is building a higher base that will act as the launch pad for a further northward journey.

We expect the stock to head towards Rs183 levels in the long term as it is the measuring implication of range breakout (Rs137-91=46 points) added to the breakout area of Rs137 project upside towards Rs183 (137+46=183)

Chambal Fertilizers: BUY| CMP Rs160| Target Rs182.00| Stop Loss Rs148| Return 14% Time Frame 6 months

The stock witnessed a strong up move during CY’17 gaining from Rs70 to Rs156 in just nine months, the stock entered a consolidation in the fourth quarter of the CY’17.

The entire consolidation has taken the shape of a contracting triangle pattern during which prices hovered in a range of Rs135 to Rs157. The stock has recently given a resolute break out of this pattern with a pick-up in volume signalling resumption of the prior bullish trend.

The time-wise correction is seen in the fourth quarter of last year barely retraced 38.2% of the up move from May 2017 low of Rs104.10 to October 2017 high of Rs157.50.

Such a shallow price correction and extended time correction following a period of sustained gains augers well for the stock from a medium-term perspective

Based on the aforementioned technical observations, we believe the consolidation phase that lasted over 15 weeks has come to maturity, in turn, giving a fresh entry opportunity.

We expect the stock to move higher and test our target area of Rs182 in the medium term as it is the pattern implication of a Triangle consolidation (158-133) as projected above the breakout level of Rs157.

Maharashtra Seamless: BUY| CMP Rs532.00 | Target Rs578| Stop Loss Rs491| Return 9% Time Frame 1 months

The share price of Maharashtra Seamless has broken out of a consolidation pattern, characterized by a healthy bull candle while also being accompanied by a sharp surge in volume that is more than five times the average volume seen over the past 200 sessions.

After a strong rally in October 2017, the stock entered a consolidation phase over the next two months during which it formed a higher low after having retraced just 50% of the preceding rally. The stock has now given a resolute breakout from this consolidation, suggesting at resumption of uptrend.

Based on the above technical evidence we expect the stock to move higher towards Rs579 levels as it is the price parity of the previous up move from Rs384 to Rs513 added to the recent trough of Rs450 project upside towards Rs579.

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 their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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