8 mid-cap wonders
Technical Report
If history is any indication, mid‐cap stocks tend to substantially outperform their large cap peers in any bull market. This time it’s going to be no different. In the previous bull market of 2007‐08, from September’s low Nifty delivered returns of 43% while the CNX Mid‐cap Index out‐performed by surging 61%. In the recent past, post the breakout in March 2014, CNX Mid‐cap Index has delivered returns exceeding 37% surpassing its previous peak of 2010. Technically, in May 2014, CNX Mid‐cap Index broke out from rising channel pattern on the monthly chart which had been persisting since 2011. Managing to close above the same was the icing on the cake. Volumes spurt along with the price upmove suggests buying interest even at higher levels. On the upside, immediate resistance is seen around 12,200 levels which should be tested in the near term. Any corrections in the interim should be treated as a retracement and investors should use declines to accumulate these stocks. We have identified eight stocks from a technical perspective. These stocks have created a strong base and witnessed accumulation following a prolonged period of downtrend and are now all set to shoot higher. Recommendation table Scrips Den Networks Dhanlaxmi Bank Eros Media Exide Industries Heidelberg Cement Indiabulls Real Estate Sobha Developers Syndicate Bank
CMP (Rs) 235 54 186 144 59 93 467 157
Target (Rs) 315 71 240 175 85 125 560 205
% Upside 34.0 31.5 29.0 21.5 44.1 34.4 19.9 30.6
June 03, 2014
Pritesh Mehta, Hadrien Mendonca & Hemant Nahata
[email protected]
This report is published by IIFL ‘India Private Clients’ research desk. IIFL has other business units with independent research teams separated by 'Chinese walls' catering to different sets of customers having varying objectives, risk profiles, investment horizon, etc. The views and opinions expressed in this document may at times be contrary in terms of rating, target prices, estimates and views on sectors and markets.
8 mid-cap wonders
Den Networks Limited
Ascending Triangle breakout: Den Networks (Den) hit an intermediate low of Rs120 in December 2013, since then the stock has been on a constant up‐move with rising volumes. In this process, the stock formed an ascending triangle pattern, which is considered to be bullish. Den had previously made an attempt to breakout from this triangle but it failed to sustain at higher levels. However, for the first time, following a long drawn consolidation, Den is on the verge of an ascending triangle pattern breakout on the monthly charts. We advice traders to buy Den Networks above Rs235 for a potential target of Rs315, implying an upside of 34%. Maintain a Stop Loss of Rs195. Den Networks monthly chart DEN [N17722] 223.75, 229.00, 209.45, 228.05, 1673172 2.79% Price
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On the verge of Ascending Triangle Breakout
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8 mid-cap wonders
Dhanlaxmi Bank
Downward sloping trendline breakout On the weekly chart, the stock has broken out from a downward sloping trendline since April 2011. The breakout has occurred with higher‐than‐average volumes after multiple failed attempts. Currently it is taking support above the falling trendline. Triangle breakout on the monthly chart In second half of 2013, the stock began the process of gradual recovery after being on a declining curve since 2010. The stock has given a classic Ascending Triangle pattern breakout above Rs46. These patterns are normally seen in an uptrend so we expect this stock to resume the process of recovery. Also, the stock has been in the process of making higher lows since last week of March which suggests strength in the current upmove. Convergence of 100‐WMA and downward sloping trendline Support for the stock is placed at Rs45 i.e. the point of convergence of above mentioned trendline and 100‐ WMA. Applying moving average analysis, a strong uptrend is possible. Buy for a target of Rs71 with stop loss of Rs46. Dhanlaxmi Bank weekly chart DHANBANK [N11359] 46.00, 51.90, 45.50, 51.00, 8728629 13.33% Price Avg(S,100)
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8 mid-cap wonders
Eros Media
Long term trend reversal: Eros Media had been in a long term declining mode since December since 2011 but has finally shown some strong signs of reversal. A turnaround from the down trend has been confirmed after the price surpassed the falling resistance line on the weekly chart in May. Pennant breakout: The current recovery process has seen the stock breaking out from a pennant pattern. A descending trend line extended from the peak of Rs195 has been pierced on the upside, thus putting an end to the short term downtrend. Sustaining above the breakout point: Currently the stock is taking support at the trendline breakout point and also sustaining above its 100‐WMA, suggesting strength in the upmove. Buy for a target of Rs240 with stop loss of Rs159. Eros Media weekly chart EROSMEDIA [N20080] 173.90, 179.00, 172.50, 176.70, 422622 2.55% Price Avg(S,100) Avg(S,200)
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8 mid-cap wonders
Exide Industries
Long term trend breakout: The stock has broken out of the downward sloping trend line from the high of 2010 suggesting stock is all poised to get into uncharted territory in the coming 12‐18months. Higher high and higher low: Exide was making a lower high and a lower low pattern even that has changed recently to higher high with retracement being higher. We recommend buying at 144 for a target of 166, 175 with a stop loss placed at 129 Exide Industries weekly chart EXIDEIND [N676] 141.50, 145.45, 140.50, 144.70, 3649877 2.95% Price Avg2(E,13,E,26) Avg2(E,13,E,26)
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Long term trend reversal
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8 mid-cap wonders
Heidelberg Cement
Triangle Breakout: The stock is on a verge of a 9years breakout point of a symmetrical triangle and looks all set to cross previous peak zone of Rs72. The volume has been picking up lately indicating strength in the recent uptrend. Riding in its 3rd Wave on the weekly chart: Heidelberg cement seems to be currently into its 3rd wave on weekly chart basis. Even at 2.618x extension of the first wave is likely to see the stock touching 85 levels. We recommend buying stock at current levels and at dips till 54 levels for a target of 85 with a stop loss placed at 47.5 on closing basis Heidelberg Cement weekly chart HEIDELBERG [N2316] 56.00, 60.50, 56.00, Price Avg2(E,13,E,26) Avg2(E,13,E,26)
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8 mid-cap wonders
Indiabulls Real Estate
Mutiple support: Indiabulls Real Estate on the monthly chart landed in multiple support zone situated between Rs40‐45‐153 following a sharp decline from Rs299 in October 2009. Resistance turns into support: It fell below a crucial support of 100‐WMA in November 2010; and that same moving average has acted as a strong support base to ascend higher in the current recovery process. Breakout from a consolidation zone: It confirmed a breakout above Rs80 in May and closed above the consolidation zone between Rs80‐40. It gave a close above the same on monthly basis for the first time since September 2011, signifying strength in the current breakout. Indiabulls Real Estate offers an excellent buying opportunity and it should bounce towards target of Rs125. Maintain a SL of Rs79. Indiabulls Real Estate monthly chart IBREALEST [N14450] 86.60, 94.50, 86.40, 92.35, 14300598 7.26% Price
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8 mid-cap wonders
Sobha Developers
Rising Channel Breakout: Sobha has been see sawing between a rising channel for almost 30 months. Since hitting a low of Rs180 in December 2011, Sobha has been on constant upswing and is gradually rising towards the upper band of the trading range. The stock has made an attempt to pierce above the rising trend‐line, however it failed to sustain above the same. Finally Sobha has once again reached a zone after consolidating for almost 30 months where the stock has pierce the upper trend‐line. So a close above Rs467 would mean confirm a break out from a rising channel. During this process, Sobha has maintained a higher and top higher bottom pattern which further accentuates our positive view on the stock. We advise traders to Buy Sobha above Rs467 for a potential target of Rs560 in near term. Keep a stop loss of Rs430.50. Sobha monthly chart SOBHA [N13826] 452.55, 463.90, 451.00, 456.80, 39306 1.50% Price
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8 mid-cap wonders
Syndicate Bank
Rising channel breakout: On lager time frame, the stock has broken out from a rising channel pattern. Rising trendline drawn from 2007 was acting as a strong resistance whichwas surpassed effortlessly in current quarter. Bullish consolidation: After going through an extended phase of consolidation which lasted 7 years and witnessing gradual upswings and whipsaws, Syndicate Bank has confirmed a bullish breakout. We advise traders to Buy Syndicate Bank for a potential target of Rs205, with an expected upside of 28%. Maintain a Stop Loss of Rs137.50. Syndicate Bank quarterly chart SYNDIBANK [N7179] 96.55, 164.00, 93.30, 160.35, 141459408 66.86% Price
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Recommendation parameters for fundamental reports: Buy – Absolute return of over +10% Market Performer – Absolute return between ‐10% to +10% Sell – Absolute return below ‐10% Call Failure ‐ In case of a Buy report, if the stock falls 20% below the recommended price on a closing basis, unless otherwise specified by the analyst; or, in case of a Sell report, if the stock rises 20% above the recommended price on a closing basis, unless otherwise specified by the analyst
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