The Hindu Business Line : Query Corner

I have shares of Crompton Greaves bought at Rs 355. Please give your views on the future movement of this stock and whether I should accumulate more at current prices? T Raj Sehgal

Crompton Greaves (Rs 242.1): Crompton Greaves launched in to a long-term correction after making multiple attempts to get past the resistance at Rs 450 in November and December last year. The stock has already retraced 50 per cent of the gains made in the bull phase that began in September 2001. The recent trough at Rs 221 is an important support for the stock. The stock has been hovering around this level since May and a long term trough is possible here. But a decline below Rs 220 would mean that the next halt would be at Rs 174.

We do not expect the stock to decline below Rs 174 and long-term investors can hold the stock as long as this level holds. Medium term resistances for the stock are at Rs 278 and then at Rs 320. The stock could move in the band between Rs 200 and Rs 320 over the next six months or so. Investors with a long-term perspective can accumulate close to the lower boundary of this trading range.

I hold shares of Eicher Motors purchased at an average price of Rs 375. Could you please let me know the medium-term prospects of this stock? Nithyanand A K

Eicher Motors (Rs 285.5): Eicher Motors has been moving in an upward moving channel between Rs 200 and Rs 450 since 2004. The stock has strong support in the band between Rs 230 and Rs 240. The short-term outlook for the stock is positive since the formation of a higher trough from March is promising. The stock could rally towards Rs 350 over the medium term. But it would be best to divest the holdings on a failure to move beyond this level. The resistance zone between Rs 350 and Rs 400 can arrest the rallies in this stock over the medium term. Suggested stop loss for medium term investors would be at Rs 250.

I hold RIIL shares purchased at Rs 1435. Kindly let me know whether I should hold the stock or book loss? P Vallinayagam

Reliance Industrial Infrastructure (Rs 957.2): RIIL has been extremely volatile in the months following August 2007 as the stock first raced from Rs 420 to Rs 3,200 only to plummet headlong to Rs 770. Surprisingly, despite these violent moves, the long-term up-trend that commenced in 2002 has not ended yet. In other words, the stock continues to be in a structural bull-market. A monthly close below Rs 800 is needed to signal the end of this up-trend. Long-term investors can hold the stock with a stop at Rs 750.

That said, it however can not be inferred that the stock would race back to its former high at Rs 3,200 any time soon. RIIL is likely to face resistance at Rs 1,750 and then Rs 2,300 over the next one year. Investors should divest their holdings, if the stock rallies to either of these levels. A range-bound move between Rs 700 and Rs 2,500 is likely over the next year before the stock decides its next long-term course.

I had bought Sesa Goa with short-term view at Rs 4000. Should I hold the stock or book profit? Sandeep Kalra, Nithyanand A K, Prabhu

Sesa Goa (Rs 3,503.1):

This stock is currently in a short-term correction following the triple top formed in May this year. The near-term supports are present at Rs 3,500 and then at Rs 3,320. Investors with a short-term horizon can hold with a stop at Rs 3,300. A reversal above this level would mean that the stock could rally once more towards Rs 4,000 and then to Rs 4,300. Some of the holding can be divested if the stock struggles to rally beyond Rs 4,000.

The long-term outlook for this stock stays positive. Since the long-term trend line is positioned at Rs 3,200, the zone between Rs 3,200 and Rs 3,400 is very important from a long term view point as well.

I wish to know the outlook for HPCL and PFC bought at Rs 260 and Rs 143 respectively. I can hold this stock for next four months to 6 months. How are they likely to move in this period? Saravanan Ramalingam

Hindustan Petroleum Corporation (Rs 194.5): HPCL is one of the public sector stocks that kick-started the bull-phase in 2002. But this stock has been among those that failed to live up to their promise, for the rally in HPCL fizzled out in 2004 and the stock has been moving in a clueless fashion between Rs 200 and 400 since then. The key long-term support for HPCL is present at Rs 260. Though the stock is revolving around this level since June 2006, the move does not resemble a base-building effort. The stock is likely to decline to the 2002 trough at Rs 166 in the next four to six months (your investment horizon).

Investors can hold the stock with a stop at Rs 160. Reversal from the zone between Rs 160 and Rs 180 can take the stock higher towards Rs 270 or Rs 300.

Power Finance Corporation (Rs 116.1): This stock is currently charting the third leg of the down-move that commenced at the November 2007 peak at Rs 297. The fact that it has breached the key support at Rs 176 implies that it can now head towards its life-time low at Rs 101. A rally beyond Rs 145 is needed to mitigate the negative short-term outlook. Short-term investors can divest their holdings and consider re-entry on a conclusive close above Rs 145.

Long-term investors can watch out for the support around Rs 100.

I hold shares of shares of Karuturi Global and Sterling Biotech. At which level can I buy more of these shares and what are the medium-term targets? Sunil Joshi

Karuturi Global (Rs 23.4):

This stock has the immediate support at the long-term trend line at Rs 21. The stock bounced off this line recently on June 12. The key long-term support is however in the band between Rs 16 and Rs 17. This level has proved to be a reliable buttress to the stock since June 2007. Investors can accumulate the stock close to this support band with a stop at Rs 14.

For the near-term, the stock is grappling with the long-term averages present around Rs 25. Once this level is surpassed, the stock can move on to Rs 30 or Rs 33. A close beyond the second resistance would ensure the stock is en route to a new high again.

Sterling Biotech (Rs 195.5): Sterling Biotech has been defying the ongoing correction; gaining 50 per cent in stock value since March. The stock is currently moving sideways in the range between Rs 190 and Rs 220, close to its all-time high. It is always difficult to determine if a sideways move is a consolidation prior to a break-out or a distribution phase before a sell-off. Since the stock has retreated sharply from the resistance at Rs 200 – in January and July 2007, accumulating the stock at this level is not recommended. It would be prudent to wait for a close beyond Rs 225, before buying additional quantities. The subsequent target for the stock would be Rs 260. The positive medium term outlook will be negated if the stock declines below Rs 175.

I have purchased shares of Reliance Communications at Rs 585. Can you please give your advice on this scrip? Hemchander P N

Reliance Communications (Rs 491.3): In our previous review of this stock we had expected that the intermittent rallies would get arrested at Rs 620 or Rs 700 and had advised short-term investors to book profit at these levels. Reliance Communication has reversed from the recent peak at Rs 608 and is headed towards the March trough at Rs 476.

We stick to the view that the current down-move could be a protracted one that pulls the stock towards Rs 440. Subsequent support for the stock would be in the band between Rs 350 and Rs 370. Exit the stock on a decline below the recent trough at Rs 476. A close above Rs 620 is required to turn the short-term view to positive.

—Lokeshwarri S.K.

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