The Hindu Business Line : Query Corner

I hold shares of Cairn India purchased during the initial public offering. Please advise me on the future outlook of this share. Antima Aggarwal, Gangadharan

Cairn India (Rs 252.7): Despite the tumble in the first month after listing, Cairn India is moving in a steady upward trajectory since the March 2007 trough at Rs 111. The trend-line drawn from this trough was tested fleetingly on January 22 and again on March 24. But it has not been penetrated conclusively yet. The long-term outlook for Cairn India will be threatened only on a decline below Rs 170.

However, the stock is not likely to run-away to a new peak just yet. It can move sideways between Rs 180 and Rs 240 for a few more months before an upward breakout occurs. Long-term investors can hold the stock with a stop at Rs 165 and accumulate it between Rs 180 and Rs 190 with the same stop.

Can the shares of UTV Software be purchased at the current levels with a long-term view? Gangadharan Mani

UTV Software (Rs 774): This stock has been on a dream-run from the June 2006 trough at Rs 130 to the peak at Rs 1,132 in December 2007. But UTV Software is moving sideways in a wide band between Rs 700 and Rs 1,000 over the last four months. The action has become especially comatose since February accompanied with almost negligible volumes.

UTV Software is also halting at the key support level at Rs 750. Low trading interest, implied by the low turnover, could shield the stock from further decline induced by weakness in the stock market as a whole. Investors with a long-term view can purchase the stock in declines with a stop at Rs 620 (on a closing basis). A reversal from this zone can take the stock to a new high over the next two years.

Please advise if I should hold or sell Gujarat Gas Company bought at Rs 361 and Varun Shipping bought at Rs 82. I am ready to hold it for two years. M.B.G. Rao

Gujarat Gas (Rs 240): This stock has retraced more than 50 per cent of the gains recorded since 2004 in the correction that commenced this January.

But the long-term trend in the stock continues to be up. Long-term investors should hold the stock with a stop at Rs 180. The subsequent support is at Rs 142.

The patterns on the daily chart imply weakness over the near-term. This negative short-term trend can drag the stock lower towards the support band between Rs 180 and Rs 190.

Resistances for the next three months would be at Rs 265 and then at Rs 292. Investors with a shorter horizon can exit at either of these resistance levels.

Varun Shipping (Rs 73.7): Varun Shipping has declined sharply since its January 11 peak and is currently poised below its long-term trend line.

The stock could decline towards its long-term base at Rs 50 over the medium-term. This view will be confirmed if it fails to move above Rs 80 over the next month.

You can exit the stock at the current level and consider re-entry if it moves above Rs 80.

The next target would be Rs 92.

Kindly let me know the future prospects of SRF bought at Rs 172. Narayana Reddy K.

SRF (Rs 108): SRF is in a structural bear market since first half of 2006. In our previous review of this stock last November, we had recommended that fresh investments should be made only on a rise past Rs 210.

The stock reversed from the peak at Rs 207 in January 2008 and is currently hovering just above its long-term support at Rs 100.

Since the near-term chart patterns in the stock imply further decline from current levels, we advise a switch from this stock at this juncture.

SRF can decline to the next support level at Rs 64 over the next one year.

We adhere to the view that fresh purchases should be made only once SRF moves beyond Rs 210.

I have bought Hotel Leela at Rs 50. What is the outlook for this stock? Manjunath

Hotel Leela (Rs 40.6): The rally between October 2007 and January 2008 proved to be a blow-off rally that is frequently witnessed in the final stages of a bull phase.

The fact that the entire move between Rs 40 and Rs 77 was retraced in just three weeks is sufficient proof that the stock continues to be in a long-term correction.

This correction is resulting in a sideways move between Rs 35 and Rs 90 since the first quarter of 2005.

Investors with a long-term perspective can hold with a stop at Rs 35.

This stock can also be accumulated in the band between Rs 35 and Rs 40.

Though the stock could remain confined to its long-term range (between Rs 35 and Rs 90) over the next one year, intermediate rallies to the upper ceiling can be utilised to book partial profits.

Please advise whether JSW Steel and Welspun Gujarat Rohren Stahl can be purchased at the current levels with a long-term perspective. Gangadharan Mani

JSW Steel (Rs 717.1): JSW Steel is currently in a long-term correction that has eroded more than 50 per cent of its value from the December 2007 peak.

The incessant decline since February 18 makes the near-term outlook extremely weak since there have been no substantial rallies since this date and the stock is even unable to hold on to its intra day highs.

A decline to Rs 650 or lower to Rs 560 is likely over the near-term.

You can wait for the stock to rebound from either of these levels before buying it. Risk-averse investors can wait for a weekly close above Rs 900.

Welspun Gujarat Stahl Rohren (Rs 390.3): The movement of Welspun Gujarat Stahl Rohren is very similar to that of JSW Steel.

The long-term up trend that commenced at the June 2006 trough has ended at the January peak at Rs 528 and the stock is moving lower since then.

The current correction is halting at the 50 per cent retracement of the move from the July 2006 low.

The near-term trend is beginning to reverse in this stock. It has also moved above its long-term average line. Investors can purchase the stock at current levels with a stop at Rs 280.

Though it can face resistance at Rs 415 and then at Rs 440 over the next three months, the stock could move towards its all-time high again over the next one year.

I have bought Reliance Communications at Rs 605. Please give your outlook for this stock. B. Sivakumar

Reliance Communication (Rs 493.2): One leg of the long-term bull phase appears to have been completed at Rs 844 in January 2008. The stock has since then retraced about 50 per cent of the up-move recorded since 2006.

Reliance Communication can halt this correction at current levels as it also occurs close to the August 2007 trough at Rs 466.

But the point of concern is that the stock’s attempts at recovery since March have been half-hearted and lacking in strength.

This fact leads us to infer that the stock could decline further to Rs 442 or even Rs 372 before a sustained recovery takes place.

Intermittent rallies would have trouble rising above Rs 620 or Rs 700 over the next six months.

Investors with a shorter horizon can book profits at these levels.

Long-term investors can wait for a decline to Rs 440 before making fresh purchases.

I have bought shares of S Kumar Nationwide Ltd at an average price of Rs 90. Please give your technical view along with support and resistance levels. Kishore Kumar Ware

S Kumar Nationwide (Rs 101.1): This stock is halting and reversing from an apt juncture, from the key long-term support at Rs 90.

But the steep gradient of the declines since January compared to the more laboured rallies implies that the stock may not be able to rally near its peak over the next one year.

Investors can book profits or pare their holdings if the stock rallies to Rs 115 or Rs 140 over the medium-term. Inability to rally above the first target would imply that the stock could move lower to the next long-term support band between Rs 60 and Rs 70.

Kindly let me know the prospects of Educomp Solutions bought at Rs 3,885. R .Selvakumar

Educomp Solutions (Rs 3,871.3): This stock bounced off key support at Rs 2,900 on March 14.

However, it is struggling to move above the near-term resistance at Rs 3,966.

A reversal from this zone again would mean that Educomp Solutions could move lower towards Rs 3,000 once again.

Hold the stock with a stop at Rs 2,850. The next support exists at Rs 2,400. The stock is likely to move in the band between Rs 2,500 and Rs 4,500 over the next year.

Lokeshwarri S.K.

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