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Technical Analysis

Author: Team Karvy/Wednesday, July 1, 2015/Categories: Stocks

Technical Analysis

 Hindustan Unilever Limited 

India’s largest fast moving consumer goods (FMCG) firm Hindustan Unilever (HUL) surged over 6% during the month of June on back of strong volumes. The stock has given a breakout from the medium term downtrend line joining Rs 980 and Rs 865 levels. Previously, the stock saw profit taking from its life time highs of Rs 980 levels tested during the second week of March this year. Among indicators, moving average convergence divergence (MACD), a trend-following momentum indicator that shows the relationship between two moving averages of prices, is in positive zone indicating momentum to be on upside. We expect the stock to continue its uptrend by making fresh life time highs in near term and thus, one can accumulate the stock on decline for targets of Rs 980 and higher in the near term.

Points of Observation

- From a sectoral perspective, while FMCG index stayed flat, stock rallied sharply in month of January gaining by more than 30%.

- From a valuations perspective, stock is trading at high price earning (PE) multiples compared to its peers due to expected high earnings growth on revival in sales volumes and improved margin outlook.

- On the daily charts, the stock is trading above all its short term and long term moving averages, indicating the bullishness in the counter and any dip towards the moving averages can be used as buying opportunity.

- The stock has seen fresh accumulation in last couple of sessions with bouncing back strongly from 200 day moving average. The stock has immediate strong support placed at Rs 855-860 levels and the uptrend is expected to continue in the stock till its stays above these levels.

- Among oscillators, the 14-day RSI line is trading above the signal line pointing northwards indicating the strength in the counter.


 United Breweries Limited 

United Breweries emerged out of demerger of the beer business from the erstwhile United Breweries, which was then renamed United Breweries Holdings. United Breweries has an association with brewing over the last five decades and commands a market share of over 50%. The company`s principle activities are to develop, market and export alcoholic beverages, leather footwear, pharmaceutical products, agrochemicals and processed foods. The company markets beer under the Kingfisher brand. 

The stock is in secular up trend forming higher highs and higher lows on monthly charts. After making life time high of Rs 1226 the stock went into cyclical correction mode which provides an opportunity to the investors with medium term perspective. Currently the stock is consolidating just above its previous breakout trend line which is currently pegged at Rs 840 levels; it also coincides with earlier highs where prices have resisted previously twice, are now becoming supports as per the principle of polarity.  The support zone is between Rs 927-800.

Points of Observation

- On the daily charts, the stock is trading above all its long term moving average; 200 days SMA which is currently pegged at Rs 877, indicating that the long term up trend is still intact in this counter and the cyclical correction is nearing ending.

- The stock has seen fresh accumulation in last couple session indicated which is evidenced by increase in volume and just above its 200 days SMA. 

- According to Elliot Wave Principle the correction from the highs of 1226 is W-X-Y corrective pattern and appears to have completed at the lows of Rs 851.4.

- On weekly charts the stock has found support above its lower Weekly Bollinger band.

- Among oscillators, on daily charts the 14-day RSI line is trading above the signal line pointing northwards and the MACD has shown a divergence with price indicating that bears have lost the momentum on the down side. 


 Asian Paints 

Asian Paints has slipped almost 25% when it fell from the highs of Rs 922.5 towards Rs 693 levels. The stock made a panic low of Rs 693 during the last week and bounced back on the same day to give a closing at around Rs 705 levels. Since then the stock has gained more than 8% from the recent lows in the last 6-7 trading sessions. It seems that the stock has bottomed out and is well set to head higher. In the recent rally the stock has moved higher with spur in volumes. This also indicates that the value based buying has been seen in the stock. The stock is expected to consolidate near its current levels and this can be used as a good buying opportunity for short to medium term investors before it heads towards its recent highs.

Points of Observation

- On the daily charts, the stock is trading above its 21-DEMA and 200-DEMA, indicating that the stock is reversing its downtrend and is likely to head towards Rs 860-870 levels in the short to medium term.

- The stock has seen fresh accumulation in the last 5-6 trading sessions indicating steep rise in price backed with higher volumes. The stock has a strong support at around Rs 718 levels and is likely to head towards its Rs 860-870 levels, where it is likely to face some resistance. 

- Among oscillators, the 14-day RSI line is about to give a breakout and cut the signal line from below and likely to continue to head northwards.

- Asian Paints is a market leader in the decorative paints segment and derives 85% of revenues from this segment. The company has 57% market share in decorative paints. The company’s earnings trajectory could see an uptick as raw material costs are down, thanks to the fall in crude oil prices, as it is a major raw material constituent to the company and any further decline in its prices will add more fuel to it.


 Larsen & Toubro Limited 

L&T is India’s largest and most respected engineering and construction company. The company is well positioned to benefit from economic recovery and it remains best proxy for Indian infrastructure development story, given its strong business model, strong execution capabilities and healthy balance sheet.

The company announced that it will list its IT services unit L&T Infotech by December, this year. And company will also be looking at listing of other businesses, including its hydrocarbons and transmission and distribution units over the next few years.

Recently L&T Hydrocarbon Engineering, the subsidiary of Larsen & Toubro, has bagged an offshore contract for the Bassein Development project from ONGC valued at Rs 2,715 crore.

In the beginning of March 2015, the stock made a life time high of Rs 1893.8, post which it witnessed round of profit booking, and prices dropped towards its 200-DEMA where fall got arrested and prices rebounded; notably in last one and half year time frame stock has well respected its long term moving average and every time stock rebounded after testing the average.

Points of Observation

- The stock is maintaining a series of higher peaks and troughs on weekly charts and well poised above its short to medium term moving averages, exhibiting underlying strength in the counter. 

- On the technical setup momentum oscillator 14-period RSI is reaffirming an underlying bullish tone, as oscillator managed to hold above 40-level during price correction, and currently it is inching higher in sync with price. 

- From the above observation, technically stock has a potential to surge higher in an uncharted territory in the coming months. Hence, one may buy stock at current levels and average the stock price on any dip towards Rs 1550-1560 levels keeping a stop loss below Rs 1390 levels, for an upside target of Rs 1900 and Rs 2050-2080 levels over next 12-15 months time frame.


Ashok Leyland 

The stock is in a structural up trend since August 2013 and posted all time high of Rs 76.95 levels. Thereafter, the profit taking from those levels has dragged the stock to the low of Rs 63.8 levels in small time frame two weeks.  However the stock resumed its up move towards Rs 75.5 levels with minor corrections, where the disappointed Q4 numbers has increase the supply in the stock which dragged the stock to its support of Rs 65-65.5 levels. Where the Q4 results has seen fall in net profit by 36% to Rs 230 crore, and the total sells jump by 43% to 8435 units for April 2015 against 5897 units in the same month last year.  

Points of Observation

- The recent price action has observed bounce from 100 DEMA thrice in last two month which reflects the said moving average will act as a strong support for the stock in near term.

- Currently the stock is trading in the consolidation range of Rs 65-75 levels. The move above the said consolidation range will be a fresh trigger for the stock which can place the stock to the new high in near term. The move from the low of Rs 64 levels has seen notable deliverable quantity with trade quantity suggest strong hands are accumulating the stock at higher levels. Technically the stock is on the verge of giving positive crossover of RSI on weekly charts and Parabolic SAR has maintained its buy signal suggest uptrend in the stock will remain intact in the near term.

- During the year, company has generated a cash surplus of Rs 2000 crore aided by positive accruals, QIP, sale of noncore assets and reduction in working capital which all resulted as reduction of debt. 

- Hence, investors could buy the stock keeping a stop loss of Rs 59 levels for the target of Rs 84-87 levels in the next 5-6 months.

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Disclaimer

The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.