The Hindu Business Line : Query Corner

Power Finance Corporation (Rs 150.8): When we had reviewed the stock in June 2007, we had expected the stock to move higher towards Rs 180 or Rs 247. PFC rallied well beyond this level to a peak at Rs 297 in November 2007 before reversing direction. After a sharp fall to Rs 152 in January, the stock is currently consolidating in a band between Rs 150 and Rs 200.

The next support on the charts is at Rs 140. Investors can hold the stock with a stop at Rs 138. If this level breaks, the stock could slide lower to Rs 120 or even Rs 100. Short-term rallies will encounter resistance at Rs 200. Investors with a shorter perspective can exit the stock if it moves to this ceiling.

I hold shares of Firstsource Solutions purchased at Rs 79. Please advice whether I could buy more to average or book loss and exit since the stock is showing no signs of bottoming. Jeyaprakash

Firstsource Solutions (Rs 34): As you have rightly pointed out, the stock is plunging downward and the bottom is not in sight yet. Since the stock has limited trading history, there are no supports that we can take recourse to either. We do not recommend buying more shares of the company to average the cost since it can only result in exacerbating the loss.

You can exit the stock at current levels and re-invest once the stock reverses upward. A fair level to re-invest in the stock would be above Rs 58.

Please let me know the technicals of DLF and ICICI Bank. Rahul, M. Ramesh Chandra

DLF (Rs 654.2): DLF does not have sufficient history to enable us to express a long-term view. The stock is correcting strongly from the peak recorded at Rs 1,225. The near-term outlook for the stock is weak. The sequence of lower peaks and troughs recorded since January portends a negative medium-term outlook. The stock appears to be heading towards the support band between Rs 520 and Rs 580 from where it launched its up-move in August 2007.

Investors can watch out for buying opportunity if the stock reverses from this band, with a stop at Rs 480. The resistance levels for the medium-term would be at Rs 840 and then Rs 900. The medium-term view on the stock will turn positive only if it moves past the second resistance.

ICICI Bank (Rs 878.2): This stock has received a hard knock since the beginning of March 2008 causing considerable damage to the long-term chart. The 200-day moving average has been breached conclusively. However, this decline has taken ICICI Bank towards its key support level at around Rs 800. This level has not been breached since November 2006. The long-term trend line drawn from the 2001 trough is also present at this juncture.

In other words, the stock price can stabilise in the band between Rs 700 and Rs 800 and launch its next upward move from there. But if this support band is breached, the next long-term support for the stock is at Rs 600.

Resistance levels for the medium-term would be at Rs 1,064 and the Rs 1,200. A reversal under the first resistance would mean that ICICI Bank will move sideways between Rs 800 and Rs 1,100 for a few months before a breakout occurs.

I have purchased Texmaco at Rs 1,445 in February. Please indicate whether I should hold, buy or exit this stock at current levels. Tushar Kanti Ghosh

Texmaco (Rs 1,399.7): Texmaco has been in a corrective phase since the beginning of this year along with the rest of the Indian equities. But the stock has withstood the selling pressure relatively well. The long-term up trend that began in 2001 continues to be intact in the stock. The correction this year has retraced more than 30 per cent of this long-term up-move.

The stock is currently poised above the long-term trend line as well as its 200-day moving average. A reversal from these levels can cause the next leg of the up-move to unfold that can take the stock to a new peak. Long-term investors can hold the stock with a stop at Rs 1,170. Though we do not expect this level to be breached, a fall below this level can however take the stock to the next long-term support at Rs 1,000. The resistances for the stock on the way up would be at Rs 1,500 and then at Rs 1,700. Investors with a shorter horizon can exit the stock at either of these levels.

Please advise whether I should hold or sell Srei Infrastructure Finance purchased at Rs 90. Uday Padubidri

Srei Infrastructure Finance (Rs 146.3): Though Srei Infrastructure Finance is down about 50 per cent from its peak at Rs 291, the long-term trend in the stock is not under threat yet. The immediate support for the stock is present at Rs 120. You can hold the stock as long as this level holds. The long-term trend line is present way below at Rs 50.

The near-term trend in the stock however appears very weak. The stock is hovering close to its long-term moving average at Rs 147. The stock could move lower to test the support at Rs 120 in near future. Medium-term resistance levels for the stock are present at Rs 190 and then Rs 228. Fresh purchases should be contemplated only if the stock moves past the first resistance.

I hold shares of NTPC bought at Rs 200 in February 2008. Kindly advise the prospect for this company. Ganapati

NTPC (Rs 194.9): NTPC is currently in a long-term correction. The stock is correcting the entire up-move recorded between May 2006 and January 2008, from the low of Rs 85 to Rs 290. The intra-day lows made on January 22 and again on March 10 have hit the 61.8 per cent retracement level of this long-term move. In other words, the stock is trying to stabilize itself around the long-term support.

Hold the stock with a stop at Rs 180. Though the stock is not likely to breach this low, if it does, then the next support is at Rs 130. The resistance levels for the medium-term would be at Rs 212 and then Rs 242. The medium-term outlook will turn positive only if NTPC moves past the first resistance.

What should we do when stocks fall below the stop loss given by you for long-term investments? For instance, Jai Prakash Associates has come to Rs 200 and Subex Azure has fallen below stop loss. Ramanathan

Stop loss levels are mentioned in our write-ups to reduce the loss on the holdings. These levels are calculated based on certain technical parameters on long-term charts such as support levels, Fibonacci retracement levels, trend lines, pattern implications and so on. The inference is that once the stock price moves below the stop loss level, the risk of loss increases. So investors are expected to exit the stock once it falls below these levels.

It is quite common that the stock brushes against the stop-loss level and reverses from there. The position could be prematurely exited in such instances. To reduce the possibility of such occurrences, long-term investors can wait for a weekly close below the stop loss level before acting on it.

In case of Jaiprakash Associates, we had marked the long-term stop loss level at Rs 200. The stock fell to Rs 196 on March 10 but closed the session at Rs 230. In this instance, we will not consider that the stop loss level has been breached.

In Subex Azure, we had assumed the sideways move between January and September 2007 was a consolidation phase in an up trend. So we had advised adding to the holding with a stop at Rs 480. But investors should have exited their holdings once the price crashed below Rs 480 since that marked a reversal in our long-term expectation.

— Lokeshwarri S.K.

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