Saturday, April 11, 2009

Market Review: Stock Specific Winners & Laggards

In the 'Comments' Section of my previous posting on Small-caps, Mr.Antriksh Patel has raised a query on status of Stock Specific Trends in selected Large-caps & Mid-caps. He has asked for predictions for individual stocks regarding their trend and whether they have bottomed out or not. Which stocks are likely to re-visit their lows and which stocks would out-perform markets as a whole.

Dear Viral,

"You have been posting wonderful articles, and they are a great help to me and hope the same for all others who are here as well. I think now the bottoms of the majority of large caps like Larsen and Tubro, RIL, Tata Steel, Sterlite Industries and Sesa Goa will change. How about predicting them. I tried to do that but could not.

Moreover the stocks where FII holding is quite high viz. Jain Irrigation, Educomp, Financial Technologies they might revisit to the same (earlier) bottoms. I would like to have some insight onto this."

As such it is difficult to predict whether individual stocks, large-caps and mid-caps, have bottomed out or not. More so, unless there is absolute defiance from fundamentals, most of the stocks are likely to re-visit their lows or somewhat near-by, when market tries to re-test its lows, if at all. That is why we should adhere to staggering our buying decisions so as to not attempt to Time the market.

In this post, i will be comparing the STOCK TREND of a few large-cap stocks and mid-caps stocks since Sensex touched 8000 levels just 20-25 days back. Since then, some stocks have shown largely bullish trend yet somewhat tiring out over a period of certain percentage of rally.

On the other hand, some stocks are found to be late movers in the current bullish momentum, but they’re gradually picking up steam and are gearing up for substantial rally even from here. While some stocks from Large-caps segment have moved promptly along with market rally, they may already be somewhere around the ‘Fair Value’ zone.


Few stocks that looked as bottomed-out to me during the recent market testing of Sensex 8000 levels are Reliance Industries, BHEL, ACC, Grasim, Infosys, ONGC, NTPC, BEL, Power Grid, Cairn, Sterlite Industries & most of the Auto stocks especially two-wheelers.

Most of these stocks smartly remained away from re-testing or coming even near to their lows witnessed in October 2008. This even as stock indices re-tested the lows established in October 2008. While Grasim has almost doubled since its October lows, the stock of Reliance Industries gained significant support on the down side on the back of commencement of production of Gas from its KG-D6 block. The stock found support at Rs.1200 way before Rs.950 odd tested during October 2008.

On the other hand, Sterlite Industries was a clear out-performer in the Metals pack on the back of robust cash position and minimal debt-equity ratio in the current slowing times. Both the Power utility majors NTPC and Power Grid showed significant support on the downside on the back of robust business prospects in the power sector. None of the two utility companies were even near to their 52 week lows.


On the other hand, some stocks which seemed weak were HDFC, HDFC Bank, Reliance Communication, Bharti Airtel, ICICI, SBI, DLF, Reliance Capital, TCS, L&T, Sun Pharma, Ranbaxy and Axis Bank.

Most of the Banking and Finance stocks have got the mention in the above list of laggards. Not even public sector banks were spared in the recent draught of liquidity towards journey to Sensex 8000 including government owned SBI. Even both the Telecom majors- Rcom and Bharti Airtel- showed surprising bit of weakness as compared to the stocks from other sectors where slowdown is more pronounced than fast growing Telecommunications space. Real-estate major DLF was not spared either. In fact, all interest rate sensitive stocks except Automobile stocks fared worst in the recent meltdown to Nifty 2600 a month ago.

Understandably, L&T showed weakness on the back of huge stake in fraud-hit Satyam Computers & Ranabxy’s stocks was adversely effected due to the set back from non-approval from US FDA of some drugs from Poanta Sahib plant.


Strong examples of bottomed out stocks from Mid-cap were Tata Comm, IVRCL Infra. Suzlon seemed to be re-testing its bottoms but revived at the right time along with market rally. Stocks that looked weak were IDFC, Videocon, Punj Llyod, Indian Hotels, HCC, I. Bulls Finance & Parsvnath Developers.

The stock that lagged during the recent meltdown & rally from there to 10500 levels is Indian Hotels. The hotel major from Tata Group continued to be a loser on the back of recent terrorist attack on its Mumbai based Taj hotel and also on the back of sharp slowdown across the globe which directly affects its client base mostly from abroad. Parsvnath Developers continue to feel cash crunch even as Indian stock market recovers in last one month.


Some stocks showed tendency of prompt bounce back, taking cues from markets were LIC Hsg, FT, Educomp, I-Flex. These stocks showed tendency to swing along with markets either based on news, niche sector of operation or underlying fundamentals of the stock.

I-Flex stock started rallying even before markets touched the trough of Nifty 2600 on the back of rumours of Open offer from the parent company Oracle. LIC Housing Finance seems to be the only stock to have led the recover amongst the Banking & Finance sector while the markets lifted itself from the recent lows of Sensex 8000 levels. Educomp continues to be the best pick for betting on the Online education sector but valuations quite a bit of concern at current high levels.


While some stocks which under-performed during the initial phase of market rally, they larter on picked up steam & participated actively ongoing rally during the last 8-10 sessions, are Reliance Communication, IDFC, Videocon, Torrent Power, Adlabs.

In the recent run up from Nifty 2600 to 3400, the large-caps were front runners only to taper down the advantage of rally to front line mid-caps in last one week. Some laggards of the recent 2800 point Sensex rally have started to take signals from the current bear market upturn. These stock are slowly picking up steam and have showed signs of recovery before they rally even more from here.


These stocks are expected to take a small breather if the current rally is, in deed, to continue forward even from here: Reliance, Grasim, ONGC, Hero Honda, Bajaj Auto, Tata Steel among large-caps.

Reliance Industries has advanced very smartly from the recent lows of Rs.1200 to around Rs.1700, a whooping 40-45% increase in a matter of 25 days as a major index stock. Cement and Viscose major Grasim Industries has clearly doubled from its trough of October lows of around Rs.831 to current price of Rs.1593. Two-wheeler majors Hero Honda and Bajaj Auto have led the recent rally even before four-wheelers come into the picture. However, Hero Honda has proved to be a ‘DEFENSIVE’ stock in the current bear market which is already more than 12 months old.

Tata Steel has rallied from the lows of Rs.150 to Thursday’s closing levels of Rs.260. The stock was a laggard in the metal space on the back of high debt-equity ratio on acquisition of Corus. The stock with high debt ratio may not have too much wings to move ahead from here, especially, after witnessing a whooping 70% rally from its recent lows.


Stocks to watch out for sharp bounce in the upcoming times are Bajaj Finserv, IDFC, LIC Hsg, Patel Engineering, I.Bull Finance, Videocon Industries, A.B.Nuvo, Thermax, R.Comm, SBI & BHEL.

This mix of large-cap & mid-cap stocks have not moved up appreciably as compared to other stocks.
And there is every possiblity that they move faster to catch-up with their lag against the market on the back of their buoyant fundamentals.

BHEL was a market out-performer in the initial 1000 points of Sensex recovery from 8000 levels. But, since its annual result announcement the stock has remained an under-performer in the later part of the current market momentum. The stock may positively participate in the rally if 200 DMA on market indices is taken out.

Some mid-caps that may fire up from here are Videocon, Indian Bull Finance & Thermax. Any incremental rally that may need support to move forwards may find push from large-caps like Reliance communications, SBI and BHEL.


We have successfully crossed crucial levels of Nifty 3240 which acted as a strong resistance for the last 5 and half months. This level of 3240 proved resistance for 4-5 times in the last few months. Now, the next resistance is at Nifty 3450 level which incidentally is an all important 200 DMA levels.


Now, markets shall take a breather for some time around current levels or within a narrow Nifty range of 200-300 points lower from here as a pull back approach. Then again, markets are likely to re-test Nifty 3450 (for 1 or 2 times) to check its resistance strength. If in final analysis, markets succeed in crossing crucial Nifty 3450 level, we may well be in for a surprise rally towards Nifty 3850-4250. These ultimate targets of Nifty 3850-4250 may well be the highest point of current bear market rally, if we succeed to cross over 3500.


Traders can remain cautious around Nifty 3400-3500 levels. They can book some gains around 3400 levels and wait for the volatility and pull back to fall out. They can again retain their long position if Nifty 3500 are crossed over which may engulf a new round of short-term rally. Nifty 2900-2950 should be an absolute Stop Loss for all kind of intermediate Long positions for the trading fraternity.

A 'Contra' call for traders would be to short the Nifty around 3400 levels with a Stop Loss of 3500 & book gains with initial target of 3240-3120.

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Faisal said...

This is a great post with very detailed analysis...nice job...So do you feel that the Indian markets have bottomed out or we can again sometime test the lows of the Nifty and Sensex?

I would agree that large caps like ONGC have botomed out in all probability unless there is something very disastrous going to happen with the global economy and financial system.

On the issue of the Sensex bottoming out I am really unsure and I feel it would largely depend on the liquidity scenario more then anything else...

Shabu's said...

Daer Viral,

Its again a worthy and informative post from you. I logically agree with your views, but things are still bad at the other end. There is a chance of another free fall exists, on the Quarterly/Election results may drag down the market to some unexpected levels. Anyway thank you for such a comprehensive and timely article. Keep it up!

Viral Rajnikant Dholakia said...


Thanks to both of you for Comments. Firstly, to point out over here that the views mentioned in the last part of 'Market Technical' are merely views from current standing of Technical indicators of makets based on charts representation. Usually, Technicals don't mix with Fundamentals & News flow.

The posting is more related to a very Short-term view on markets based on prevailing market technicals & not an elongated 6-8 month view of sorts.

Of course, as you pointed out, the down side risks do remain in the medium term horizon, but not in short-term unless Nifty 2900-2950 is breached on the downside.. Also, as you told results & election risks do exist & that may provide that extra bit of volatilty for the makets to react at.

My point of contention in the post is... in the short-term markets may have well graduated into a new BROAD range altogether, of Nifty 3150-4250. Though, this most likely seems as a 'Bear Market Rally' & it is difficult to come out of the bear grip so soon. So, this may just be a gallop to a new broad range & a sharp pull back of sorts after a huge meltdown from peaks established a little more than a year ago.

In the Medium-term horizon...

I feel we shall again RE-TEST the lows of Nifty 2550, sooner or later, once the role of consolidation in the new range of 3150-4250 is played off.

However, for this new range to play-out, cross-over of 200 DMA levels of 3450 would play a crucial role.

If these levels of Nifty 3450 level is not crossed-over, we shall as well linger for some time in a narrow range of 3150-3450. And at some point of time markets would, led by negative global cues or even demostic news like corporate results & elections, give up and fall back in the old range of 2550-3150.

Shabu's said...

Thank you Viral... I got cleared your views... Thanks for the clarification...& regards

Antriksh Patel said...

Hi Viral,

Thanks for your article.

One more news related to Satyam. Since Tech Mahindra has succeded in taking over the Saytam, I think L&T is saved and will be benifical to L&T. I think now L&T will not have more downside.


Antriksh Patel said...

Hi Viral,

I think now we have good ideas on where to invest and at what levels to invest. But unless and until we book profits the investment is going to be useless. Consider the stocks like L&T where people say that invest for a long term. When should one book the profits? What should be the "Exit" strategy for the investor in a particular stock?

I think I have made clear about my concerns. Thanks in advance.

Mohit said...

HI Viral

Thanks for your article again a great one,

What are your views on LNT now will their be change in EPS of the company due to loss in the stake @ satyam, As per news they have lock in period of 6 months for satyam shares. What are your views on future of satyam

Mohit said...

Dear Viral

Can you explain what is AS11 puzzle and do you think it would be a kind of trap in terms of low P/E as EPS will increase but what about future earnings??