Trading Idea & Strategy: PSU major BHEL

Antriksh Patel has asked a query on L&T and its Prospects until its Results announcement. Presuming from his query that his investment perspective is only until Results announcement for the stock which is 35-45 days away from now, he seems to be having sight on the Short-term prospects of L&T until around Mid-July 2009.

Hi Viral,
I think L&T is slowly and gradually gaining momentum.
Till the results it can touch 1700. What is your say?

For this, I have presented an alternative for short-term trading purpose in a PSU stock - BHEL. In the current situation, L&T may be prone to a small downside before it makes fresh highs. The stock has jumped sharply from Rs.950 before election results were announced to Rs.1350 at today's closing. No doubt, the momentum is strong in the counter and it has shown amazing strength even in the last couple of day's of extreme volatility.

But, here is what i have to say for trading in BHEL and what strategy can be adopted to minimize the risk of trading in this counter with appropriate strategy to be used as follows:

Dear Antriksh,

FROM SHORT-TERM PERSPECTIVE...

L&T could be, indeed, one of the top contenders to benefit from renewed infrastructure spending that may likely be announced during the Union Budget some 35-45 days from now.

But, speaking in terms of price appreciation in last few days in L&T and BHEL, perhaps BHEL is a better contender to benefit from dual reason of Infrastructure & Power sector spending and also Disinvestment prospects in PSU stocks by the Central Government.

Also, L&T at today's closing has still not corrected substantially from its peaks since election rally. Whereas BHEL has given up half the gains witnessed post-election rally to till date as on today's Closing level of Rs.2040/-.

However, BHEL and L&T are both expensive seen in terms of Valuations. But, in short term one can play with BHEL by buying as per below mentioned strategy with view of 30-40 days holding period:

Suppose You wish to invest Rs.16000 for Short-term Trading:
Buy BHEL 5 shares @Rs.2040 (CMP)
Buy BHEL 3 shares @Rs.1850-1900 Range

Once you Buy the stock @Rs.2040, you need not worry whether the stock goes down or up in next few sessions. You can still average at lower levels until Rs.1850-1900 since you have staggered your trading amount of Rs.16000 into 2 parts of Rs.10,000 and Rs.6000.

If the stock goes up after buying the initial quantity of 5 shares @Rs.2040, no need to think about remaining quantity. At least, you have invested 60% of your amount & you'll be rewarded to that extent, even in times of high uncertainty in present times.

Trading Idea for BHEL :

Buy in 2 Tranches at Rs.2050 & Rs.1900
Target 1: Rs.2300
Target 2: Rs.2500
Stop Loss: Rs.1800 (Closing basis)
Time Frame: 30-45 days.

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