Query Corner: Long-term correction seen in SAIL

I want your opinion on Patni Computer purchased at Rs 563 and SAIL bought at an average rate of Rs 160.

Ravindra Davda

Patni Computer Systems (Rs 367.5): Patni Computer has long-term resistance around Rs 575 where it peaked in June 2007. The stock once again spluttered around this zone in June last year and is in a sharp correction since then. The stock declined below its key medium-term support at Rs 423 this month. Subsequent supports are at Rs 360 and Rs 300.

The stock is close to the first support but is not showing any sign of reversal from here.

Investors with long-term perspective can however hold the stock as long as it trades above Rs 300.

But the medium-term is likely to be choppy for this stock and it can face resistance at Rs 420 and Rs 500 in the days ahead. Investors with short-to-medium term perspective should exit the stock on failure to move beyond these resistances.

The area between Rs 600 and Rs 620 will continue to act as a strong long-term resistance over the next couple of years.

SAIL (Rs 155.1): Steel Authority of India is in a serious long-term correction since last April's peak of Rs 258.

This correction has already retraced half the gains made since October 2008. The stock is currently hovering around the long-term support at Rs 160.

Sharp decline below this level will take the stock to Rs 133 that can act as the stop-loss level for long-term investors.

Fall below this level will open the possibility of the stock declining all the way to the March 2009 low of Rs 70.

SAIL could stay volatile in the medium-term and could face difficulty rallying above Rs 190 or Rs 220 in this period. Reversal from these hurdles can make the stock vacillate sideways in the range between Rs 130 and Rs 220 in the months ahead.

Please advise on the medium and long-term outlook of Union Bank and Everonn Education.

D.S. Negi

Union Bank of India (Rs 326.3): The structural trend in Union Bank is up since the first quarter of 2009. That the stock moved strongly above the January 2008 peak of Rs 234 and is currently holding around 37 per cent above it underlines the strength in the long-term uptrend.

Crucial support for the medium term is in the band between Rs 305 and Rs 315. A rebound from this zone will retain the bullish long-term outlook and pave the way for a break-out to Rs 500 or higher over the next couple of years.

A prolonged sideways move between Rs 300 and Rs 425 can ensue in between.

However, sharp decline below Rs 300 will mean that the stock is heading towards Rs 277 or Rs 239 over the medium term. Long-term investors can hold the stock with a stop at Rs 230. The long-term outlook will turn negative only on a weekly close below this level.

Everonn Education (Rs 559): Everonn is in the corrective mode since last October.

Key support that investors need to watch out for is around Rs 500. If the stock holds above this level, it will mean that it can eventually break-out higher towards its life-time high of Rs 1,236 over the long-term.

That said decline below Rs 500 can drag the stock down to Rs 420 or Rs 340 over the long-term. Long-term investors can hold the stock as long as the second support holds.

Please discuss the technical prospects of Mastek and Indo Tech Transformers.

Mukesh Kumar

Mastek (Rs 102.2): Mastek is among the more volatile stocks in the IT pack. It was fluctuating in a wide trading band between Rs 95 and Rs 400 since 2003. Investors need to stay on their guard since the stock is currently testing the lower end of this long-term trading band.

Strong weekly close below this level will mean a serious deterioration of the long-term prospects and the stock can then slide lower to the October 2001 low of Rs 26 also.

Investors therefore ought to divest their holding on a close below 90.

Conversely, a bounce from here can take the stock higher to Rs 230 or Rs 300 over the medium-term.

Investors can divest their holdings in such rallies. Long-term view will turn conducive only if the stock records a strong weekly close above Rs 460.

Indo Tech Transformers (Rs 148.9): Long-term view for Indo Tech Transformers is extremely weak. The stock is currently trading below its October 2008 low of Rs 160. Next support zone for the stock is between Rs 115 and Rs 130 where the stock bottomed in June 2006.

Investors can hold the stock with stop at Rs 110. It is hard to predict the bottom once this level is breached.

Key medium-term resistance is at Rs 234. Risk-averse investors can divest their holdings at current juncture and consider re-investment on a strong close above Rs 234. Subsequent targets for the stock would be Rs 260 or Rs 290.

I hold shares of ARSS Infrastructure bought at Rs 840. Can you give the long-term outlook of this stock?

Pavan

ARSS Infrastructure Projects (Rs 418.8): This stock was listed only in March 2010 so it does not have sufficient history to enable us to form a long-term opinion about it. Since the long as well as the medium-term trend in the stock are down, the bottom is not yet in sight.

It would be best for investors to switch out of this stock at this juncture and consider re-entry on a close above Rs 650. A rally to Rs 800 will be possible then.

Please let me know the long-term prospect of Subex bought at Rs 57?

Neeraj

Subex (Rs 63.3): Subex reached a nadir at Rs 19 in March 2009. The rally from this low stalled around Rs 100 in October 2009 and the stock is moving sideways between Rs 50 and Rs 100 since then.

Investors can hold the stock as long as it trades above Rs 50. Strength above this level will mean that the stock can move up to Rs 120 or Rs 130 in the months ahead.

The long-term trend in this stock however continues to be down. We stay with the view that a strong weekly close above Rs 250 is needed to mitigate the long-term bearishness in this stock.

Please explain your outlook on Thermax.

Altaf Hussain

Thermax (Rs 598): Thermax is in a medium-term correction since the November peak of Rs 926.

In our review of this stock in January, we had pointed out that key support was at Rs 635 but if the decline continued, the stock could fall to Rs 540 or even Rs 450.

The stock is attempting to hold around Rs 635 but a decline to Rs 540 appears likely in the days ahead.

Investors with a long-term perspective can hold the stock with a stop at Rs 400.

If it manages to hold above Rs 450, rally to Rs 1000 is possible over the next couple of years. Medium-term resistances for the stock are at Rs 700 and Rs 790.

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