Market Strategy

Query Corner: Dr Reddy's Labs continues to be in a long-term uptrend

Lokeshwarri S.K. | Updated on December 17, 2011

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I would like to buy shares of BHEL. At what price should I buy them?

Ghanshyam Malpani

BHEL (Rs 240.4): The structural uptrend in BHEL began in 2000 and the stock recorded a very strong run-up between 2001 and 2007. Since the 2007 peak of Rs 585, the stock has been trading in a broad band between Rs 235 and Rs 600. The long-term trend in this stock continues to be up and this trend will reverse lower only if the stock closes below Rs 200 for three consecutive weeks.

The stock is currently in a strong intermediate term downtrend. This decline has made the stock near its long-term support zone between Rs 200 and Rs 230. Investors should accumulate this stock in declines with stop at Rs 200. Fresh purchases are, however, not recommended on a close below Rs 200.

Bounce from the aforementioned support zone will take the stock up to Rs 360 or Rs 430 in the months ahead. Long-term targets are Rs 540 and Rs 585.

I bought Vijaya Bank at Rs 85 and Mercator at Rs 42. Can I add more shares at present levels or should wait for some more time?

Y. Suneeta

Vijaya Bank (Rs 51.1): Vijaya Bank has not had it easy of late, hitting record lows every other day. However, investors can take heart from the fact that the stock is hanging on to its long-term support zone between Rs 50 and Rs 55. The stock has not been able to do a sharp rebound from this level but it is holding on to this zone since October.

Investors can hold this stock with stop at Rs 45. Decline below this level will take the stock to Rs 40 or Rs 37. Breach of Rs 37 will result in a steep fall towards the stock's March 2009 low at Rs 20.

The stock will face resistance at Rs 75 and Rs 90 in the months ahead. Investors with a short- to medium-term perspective can divest their holdings on failure to move above either of these levels. Long-term resistance for the stock remains at Rs 115.

Mercator (Rs 18.9): Mercator has long-term support in the zone between Rs 20 and Rs 30. This zone supported the stock in July 2006 and again in March 2009. The stock is currently hovering at this support zone.

Investors can hold the stock with stop at Rs 18. Any further decline would spell trouble since the next halt can be at Rs 13 or even lower at Rs 8. Those with a greater penchant for risk can buy the stock at current levels with stop at Rs 19.

Any rally will face resistance at Rs 55 and then at Rs 77 in the months ahead. Medium-term view will turn positive only on close above Rs 84. Subsequent targets are Rs 123 and Rs 186.

Please discuss the outlook of Dr Reddy's Laboratories and Procter & Gamble Hygiene & Health Care.

Anil Kumar Ray

Dr Reddy's Laboratories (Rs 1,606.2): Dr Reddy's Lab has strong long-term resistance in the zone between Rs 800 and Rs 850. The stock could not get over this hurdle up to September 2009. But once this level was surpassed, it more than doubled in the next two years to hit the high of Rs 1,855 by December 2010. Despite the rest of the stock in Indian stock market going into a tailspin since last November, this stock has held quite steady, oscillating in the band between Rs 1,500 and Rs 1,850.

Next medium-term supports for the stock are at Rs 1,400 and Rs 1,300. Investors can hold the stock with stop at Rs 1,300. The stock can also be accumulated in declines with the same stop. Subsequent supports are at Rs 1,100 and Rs 936.

Continued movement in the band between Rs 1,300 and Rs 1,850 in the upcoming months will be positive from a long-term perspective. It will denote that the stock can move higher to Rs 2,200 over the long-term.

Procter & Gamble Hygiene & Health Care (Rs 1,795): Procter and Gamble recorded the peak of Rs 2,372 in April last year and is extremely volatile since then. Despite this volatility, the structural uptrend in this stock continues to be in force. The stock rebounded from the low of Rs 1,460 in February, which is the half-way mark of the rally from March 2009 low.

Next long-term support is at Rs 1,300 and investors can continue to hold the stock as long as it trades above this level. The medium-term support to watch out for is at Rs 1,750.

Investors with a medium-term perspective can hold with stop at Rs 1,730.

Resistances for the months ahead would be at Rs 2,172 and Rs 2,372.

Can you explain the outlook of Unitech for the next two years? I am holding the stock bought at an average price of Rs 80? Should I average, stay invested or quit the stock?

Harish Anand

Unitech (Rs 19.5): Unitech is wallowing close to its all-time lows since this August. The stock was moving sideways in a narrow range between Rs 25 and Rs 30 between August and November. It, however, took a step lower to hit a new life-time low at Rs 19.25 on December 16.

The entire zone between Rs 20 and Rs 25 is a long-term support for the stock since it recorded the low of Rs 21.8 in November 2008. Investors can therefore hold the stock as long as it trades above Rs 18.

It would be best to divest your holdings on a close below Rs 18 since it is not possible to infer where the next halt can be. Investors with a lower risk appetite can exit the stock at this juncture and consider re-investment once it goes on to record a weekly close above Rs 25. Short-term resistances for the stock would be at Rs 38 and then at Rs 49. Medium-term view will turn positive only on a close above Rs 49. Subsequent targets are Rs 58 and Rs 80.

I would like invest in Mundra Port for long term. What is the technical outlook for these stocks?

Hiten Vira

Mundra Port & SEZ (Rs 126.3): This stock has long-term resistance around Rs 180 and the rally from the 2008 lows halted at this level in October 2010. A sideways consolidation is in progress since then resulting in the stock moving in a band between Rs 120 and Rs 180. Immediate support for the stock is at Rs 120 and the next support is at Rs 100.Investors with long-term perspective can buy the stock in declines with stop at Rs 95. Recovery from here will mean that the stock has the potential to move higher to Rs 170 or Rs 185 over the next 12 months. Target on a move above Rs 185 is Rs 255.

I am having shares of Rishi Laser purchased at Rs 76. Can I continue to hold the stock?

N. Gopalakrishnan

Rishi Laser (Rs 27.8): The trends along all time-frames are down for Rishi Laser. The stock is currently trading well below its medium-term support at Rs 45. A move above this level is needed to turn the view positive again. If the stock continues to move lower, it will test the 2008 low at Rs 18. This can act as stop loss for investors.

The stock will face resistance at Rs 45, Rs 50 and Rs 65 in the months ahead. Long-term view will turn positive only on close above Rs 90.

Published on December 17, 2011

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