The Hindu Business Line : Query Corner

I hold shares of ONGC and ACC purchased at Rs 1,030 and Rs 725 respectively. Please let me know the future prospects of these stocks. Vijay Kumar Raheja

Oil and Natural Gas Corporation (Rs 830.1): This index heavy-weight is currently in a long-term correction that is threatening the structural bull market that commenced in 2000. The breaching of the long-term trend channel in the monthly chart is a negative as is the weakness in the monthly momentum indicators. The stock is currently hovering around the first long-term support at Rs 880. But there is a strong possibility of the stock moving lower to Rs 720 or Rs 670.

However, the long-term view on the stock will turn overtly negative only on a decline below Rs 570 and long-term investors can hold the stock as long as this level holds. However, medium-term rallies will face resistance at Rs 1,020 and then Rs 1,160. A sideways move between Rs 800 and Rs 1,150 is likely over the next three to six months. Investors with a shorter investment horizon can divest their holdings at either of these levels.

ACC (Rs 579.3): This stock has strong long-term support at Rs 680 from where it has reversed strongly twice in June 2006 and then in April 2007. This level is also significant since it occurs at 50 per cent retracement of the rally from the October 2000 trough at Rs 84. However, ACC penetrated this level in May and is currently moving towards its key long-term support at Rs 554. If this support is penetrated, the next halt could be at Rs 440.

The stock is appearing very weak from a short as well as medium-term perspective. Investors can hold the stock as long as it holds above Rs 550. A close above Rs 700 is needed to mitigate the negative short-term outlook. Medium term resistances would be available at Rs 850 and then Rs 1,050. Medium term investors can sell the stock at either of these levels.

Please advice me on the future of Syndicate Bank bought at Rs 76. Antima Aggarwal

Syndicate Bank (Rs 52.3): The long-term up-trend line was breached conclusively in Syndicate Bank in March and the stock has declined 60 per cent from the peak of Rs 129.9 recorded in January. The stock is currently halting close to its key long-term support at Rs 54. The next long-term support for the stock is present at the July 2006 trough at Rs 47. Long-term investors can hold the stock as long as this support holds. It would be best to divest the holdings on a breach of this level since the next support for the stock is at Rs 30.

The preferred view is that the stock forms a long-term trough in the zone between Rs 45 and Rs 55 and moves higher towards Rs 100 over the next two years. Interim resistance levels are at Rs 82 and then Rs 100.

I hold shares of Punjab Communication bought at Rs 35.50. Please let me know the technical outlook for this share. Richa Aggrawal

Punjab Communications (Rs 25.9): This stock is in a structural bear market. Though the stock was trading above Rs 300 prior to 1995, it has spent the period since 2001 in vacillating in a sideways band between Rs 25 and Rs 85. Investors can hold the stock with a stop at Rs 20 since the stock has managed to reverse from the band between Rs 20 and 25 twice in the last two years. The rebound from here can take the stock to Rs 40 or Rs 56. Rally beyond the second target will propel the stock to the long-term resistance at Rs 87.

I wish to know the outlook for Powergrid Corporation and Gujarat Sidhee Cement bought at Rs 147 and Rs 38 respectively. I can hold this stock for next four to six months. How are they likely to move in this period? Can I buy more of these shares at current levels? Nanda Kumar D

Power Grid Corporation (Rs 80.1): In our previous review of Power Grid Corporation in March, we had expected it to build a base between Rs 90 and Rs 120 for a few months before moving higher. But the stock’s decline in June has taken it below the January 22 trough at Rs 78. Due to the limited trading history in this stock, it is difficult to arrive at the support level below Rs 78. It is difficult to determine where the stock will finally bottom-out. We recommend exiting the stock at this juncture and re-entering once it closes above Rs 115 on a weekly basis. The hurdles at Rs 115 and Rs 135 will be hard to surpass over the next six months.

Gujarat Sidhee Cement (Rs 26.9): Though this stock tumbled sharply between January and March from Rs 45 to Rs 15, the subsequent up-move has taken the stock to Rs 30 once again. The gradient and the magnitude of the decline since January however denote that the stock has entered in to a protracted down-trend and any rallies from here would be short-lived. Investors should therefore be watchful for sudden reversals from Rs 30 or Rs 33.6. Part of the holding can be divested at current juncture and the rest can be held on to with a stop at Rs 24.5.

I wish to know the outlook for Reliance Natural Resources Limited. Please let me know whether I should hold the stock or book loss. Selvakumar S, Shantha Kumar

Reliance Natural Resources (Rs 72.3): In our previous review of this stock in the February 24 issue of Investment World, we had anticipated the stock to decline towards Rs 75 and had recommended an exit on a decline below Rs 100.

RNRL could not move beyond Rs 128 in the subsequent period and penetrated the support at Rs 100 in June. The immediate support for the stock is around the January 22 trough at Rs 75. The stock is currently hovering close to this support. A reversal from here can trigger a medium term up-move to Rs 128 or Rs 138 where part of the holdings can be divested. The stock needs to close above the second resistance to convert the medium term outlook to positive.

Penetration of the support at Rs 70 would imply a decline all the way down to Rs 50. Investors should exit the stock on a close below Rs 70.

Could you define“beta factor" and how it affects the share price? Is it constant factor or a variable one? Sandeep Kalra

The beta value of a share measures the correlation between that share and any index (Sensex is commonly used to calculate beta values in India). It denotes the sensitivity of the stock to the moves made by the overall market. A beta of 1 would denote that the stock moves in tandem with the market. A beta above 1, say 1.2 is said to be highly correlated. A 10 per cent move in the Sensex would then translate into a 12 per cent move in that particular stock.

Similarly, beta value of less than 1 would mean that the stock is less susceptible to the sharp moves made by the market. Certain sectors such as the pharmaceutical sector in India have low beta value. They lose much less when the market falls. Conversely, they do not participate in market rallies to the extent that high beta shares do.

Beta value would also depend upon the stock. Sector leaders have higher beta since more investors are interested in such stocks. Pivotal stocks such as Reliance, SBI, Infosys, ONGC and so on have high beta values since their movement determines the direction of the benchmark index. Stocks with a higher floating stock and greater trading interest also tend to enjoy higher beta.

Beta factor is not constant but changes with each new data point. It is commonly perceived that certain sectors fall out of favour with investors and stocks in this sector get converted from high-beta to low beta stocks. A case in point is IT stocks that enjoyed a low-beta all through 2007 as investors turned away from this sector.

Investor can buy high-beta stocks if their outlook for the overall market is bullish. If the view is pessimistic, then buying low-beta stocks is prudent since these stocks would not suffer as much if the market goes in to a tail-spin.

— Lokeshwarri S.K.

More Stories on : Technical Analysis | Recommendation

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page