India’s Hottest stocks for September 2007

Sundaramurthy Vadivelu

Disclosure Please click on the above link to view the disclosure document before reading this article. The contents may not be reproduced in any form without obtaining prior permission from the publisher. Please send your feedback

In this article let us review the stocks that witnessed the most and least demand from the market participants and also how some of The India Street stock picks performed during this month.

Top 10 gainers during the month are given below.

NSE Ticker	BSE Scrip code	BSE Group	% Gain
RIIL	523445	B1	178.14
STCINDIA	512531	B1	115.08
RNRL	532709	B1	90.54
WALCHANNAG	507410	B1	82.62
REIAGRO	532106	B1	79.70
MRPL	500109	A	70.37
IVC	511208	B1	64.44
AFL	532774	B1	60.13
KKCL	532732	B1	57.87
BINANIIND	500059	B1	55.47

RIIL and RNRL: We discussed about these stocks in my previous article “Hot or Not? Ambanis on a dream run!”

State Trading Corporation of India: This stock had broke its resistance after one year consolidation pattern, as seen from the chart below. The stock moved between 130 and 170 before breaking out on the upper side.

http://groups.google.com/group/theindiastreet/web/STCINDIA_D_280907.jpg

On September 18 the stock had a 20% upper freeze after breaking out. It was followed by another 18% rise and 3 consecutive 10% upper freeze sessions. There is a higher degree of risk in stocks like this – prices rise vertically, but they may also fall in the same way, leaving the sellers stranded.

Walchand Nagar Industries: The operating range (upper or lower freeze limit) was revised for the stock from 5% to 20% in August.

http://groups.google.com/group/theindiastreet/web/WALCHANNAG_D_280907.jpg

Technically the stock broke its resistance on September 18 and it was followed by a vertical rise.

REI Agro: This stock had ended a 21 month consolidation pattern in June. It has gained more than 160% since then. In the last 6 weeks it has gained 140%.

http://groups.google.com/group/theindiastreet/web/REIAGRO_W_280907.jpg

It can be seen that the stock had no correction at all over the last 8 weeks.

Mangalore Refinery and Petrochemicals: This was The India Street short term pick. However we indicated that there was an inverse head and shoulder pattern in weekly chart, meaning it could be good for medium term too.

IL & FS Investment Managers: This is a medium term pick by The India Street.

Access Frontline: We discussed this stock in my earlier article “5 India stocks to avoid (short term perspective)” dated August 7. From 51.40 it came down to 45.10 on August 24. It bounced back and touched a high of 56.75 on September 5. After the price band revision from 10% to 20%, it broke the resistance on September 24 with 20% freeze. This was followed by another 20% freeze and 11% rise. However yesterday it lost 10%.

Kewal Kiran Clothing: This was a low volume stock with a 21 day moving average of around 3000 shares. The risk in such stocks is low liquidity.

Binani Industries: From a low of 144.05 on September 4 it has touched a high of 241.30 on September 19, with just 2 days of correction in between (each about 5%). In the absence of clear waves, it is not advisible to pick such stocks.

The crowd was least interested in the following stocks. Interestingly, many of them belong to IT sector.

NSE Ticker	BSE Scrip code	BSE Group	% Loss
MAGNUM	532896	B1	(32.69)
SELMCL	532886	B1	(26.66)
GEOINFO	503699	B1	(21.15)
SUBEX	532348	B1	(17.74)
AARVEEDEN	514274	B1	(16.54)
CYBERMEDIA	532640	B1	(15.96)
TRENT	500251	B1	(15.63)
TELEDATAIN	532358	B1	(14.70)
AZTECSOFT	532385	B1	(14.12)
ALLSEC	532633	B1	(13.57)

Magnum Ventures: It is a new issue and got listed on September 20.

SEL Manufacturing company: Again a new issue. IPO price was 90 and after 3 days of listing it closed at 218.65 but since August 24 it is on a downtrend.

Geodesic Information Systems, Subex Azure, Aarvee Denim & Exports, Cybermedia, Trent, Teledata Informatics and Aztec Software have been on downtrend.

Allsec Technologies has been very bearish in medium term chart and it has fallen from a high of 373.85 in February to a low of 148 this month.

Some of the stock picks by The India Street have gained reasonably this month as shown in the table below.

Scrip	% Gain	Scrip	% Gain
GVKPIL	20.92	SREINTFIN	27.49
RPL	30.47	NAGARFERT	34.73
ADANIENT	44.21	ROHITFERRO	30.04
ISPATIND	38.14	JINDALPHOT	37.42

Sundaramurthy Vadivelu

Suggested Reading

India's Hottest stocks - Winners and Losers for June 2007 Top 10 Hot India Stocks for July 2007 India’s hottest stocks for August 2007 Top Ten Signs a Stock is Going to Move up or down

Stock of the week: Dr.Reddy’s Laboratories Limited

Disclosure

The India Street Analysis of India’s premier pharmaceutical company

Dr.Reddy’s Laboratories Limited is a vertically integrated pharmaceutical company with presence in more than 100 countries. It has recently become India’s top pharmaceutical company in terms of turnover and profitability.

Brief company history:

The company was established in 1984 with a modest capital of Rs.25 lacs by Dr. Anji Reddy. Within a couple of years, the company went public and also entered international markets. In 1993 it started drug discovery program by establishing Dr.Reddy’s Research Foundation. By 1994 a GDR (Global Depository Receipt) issue was successfully made (worth US$ 48 million). In 1999 Dr.Reddy’s acquired American Remedies Limited, an Indian pharmaceutical company. In 2001 it acquired BMS Laboratories Limited and Meridian Healthcare in United Kingdom. It got listed at New York Stock Exchange (NYSE) in April 2001, becoming the first pharmaceutical company in Asia Pacific region outside Japan to be traded. By December 2006 its revenues touched USD 1 billion.

Business Overview:

Dr.Reddy’s has six main areas of businesses:

• Active pharmaceutical ingredients (bulk actives and key intermediates)

• Generic pharmaceuticals (therapeutic equivalents of reference branded drugs)

• Speciality pharmaceuticals (dermatology)

• Branded formulations

• Biogeneric formulations

• Custom pharmaceutical services, including project management, R & D, formulations etc.

Some of the popular products include Ciprofloxacin, Ibuprofen, Ranitidine, Aquaderm etc. to name a few.

Dr.Reddy’s net revenues were worth USD 1.5 billion during the financial year 2006 – 07, 41% of which came from branded formulations and 34% from active pharmaceutical ingredients. North American and European markets accounted for 44% and 23% respectively. So the company is a global player in pharmaceuticals industry. Its main brands, Omez (Omeprazole), Nise (Nimesulfide), Ciprolet (Ciprofloxacin), Enam (Enalapril), and Ketorol ((Keterolac Tromethamine) together contribute more than USD 100 million to the total revenue.

In India, the stock is a constituent of both BSE Sensex (Free-float market capitalization: Rs.7830 crores; weightage: 0.84%) and Nifty (FFMC: Rs.10,655 crores; weightage: 0.45%). As mentioned earlier, the stock is also listed at New York Stock Exchange (Symbol: RDY) since April 2001.

The weekly chart of RDY at NYSE is displayed below. (Data Source: Yahoo! Finance)

http://groups.google.com/group/theindiastreet/web/RDY_W_NYSE.JPG

A “symmetrical triangle” chart pattern has been formed in the medium term chart as shown above. Note that the stock attempted to break its previous high at 19.06 but failed. It can also be seen that, during the downtrend, higher lows and lower highs are formed. Symmetrical triangles are regarded as areas of indecision. As higher price levels are reached, selling starts to push them lower whereas some bargain buying takes place when stock hits support trendline. It can also be noted that bearish breakout has not occurred yet. Only a close below the support trendline will confirm such a breakout. Similarly, in case of uptrend, a close above resistance trendline with volumes will confirm upper side breakout.

Let us now discuss the short term trend using daily chart with NSE data.

http://groups.google.com/group/theindiastreet/web/DRREDDY_Daily_170807.JPG

I have written in my earlier articles about Fibonacci retracement levels. 38.2% and 61.8% retracement levels are very important and these levels should act as strong support or resistance during downtrend or pull back. 50% is strictly not a Fibonacci support but it is the average of 38.2% and 61.8% and many people consider this level also an important one. In the above chart, volumes are hidden to maintain clarity. During the first uptrend from 601 to 752 we don’t see a clear wave formation i.e. consistent higher highs and higher lows (it may not always be the case with every stock, but good trending stocks always show these most of the time). It can also be seen that during the corrective decline, at first 38.2% acted as a support; once low went below this level, stock tended to recover. But after some consolidation it once again fell further. We can see that the stock closed below 61.8% retracement. The pullback rally was again shortlived, taking the stock to nearly its support level at 601. Similar type of formation can be seen in the next wave pattern too; it has closed below 61.8%. The level of 601 is very critical. A close below this will favour further downtrend.

What are the technical indicators suggesting? Let us see some of them.

• The stock is trading well below its 50 DMA (50 day exponential moving average), 100 DMA and 200 DMA

• 10 day, 15 day and 21 day momentum (rate of change of price) indicators are all negative

• The Wilder’s DMI (directional movement indicator) favours further downtrend; -DI is above +DI and ADX is rising from a trough.

It is safe to classify the stock as “bearish” for the short term as none of the main technical indicators suggests clear uptrend, though, ideally, one would like to see the support getting broken in order to confirm.

The long term outlook in monthly charts suggests that the stock is likely to correct further.

http://groups.google.com/group/theindiastreet/web/DRREDDY_Monthly.JPG

In my earlier article “India stock market traps” I had mentioned about Elliott wave thoery. In the above chart, one can watch waves 1 through 5 during the uptrend. The correction from top of wave 5 (wave a) was extremely sharp; it nearly tested the support at 299.53, low of wave 4. As we saw with daily chart, it broke 61.8% retracement. The pullback wave ‘b’ has managed to take the stock above its previous high. However, watch the long upper shadows at the top of the trend indicating selling pressure. Now wave ‘c’ is in progress, meaning further downtrend is likely. The stock has also closed below 665.70 (38.2% retracement) and next support is at 527 (61.8% retracement).

Conclusion:

Dr.Reddy’s declared a whopping net profit of Rs.1177 crores for financial year 2006 – 07 as against Rs.211 crores, Rs.65.5 crores and Rs.283 crores for the previous years. The stock reached a high of 889 in December 2006. So this performance was already discounted by the market.

We have seen that the short, medium and long term trends are bearish. So, we can arrive at the following conclusion.

• Long term investors, particularly those who bought the stock 10 or 15 years ago, can safely exit the stock at higher levels.

• Medium term trend, though yet to be confirmed, is not likely to favour higher levels; so it is wise not to pick this stock as an investment choice.

• Short term traders need to avoid the stock as it is bearish in short term charts.

Sundaramurthy Vadivelu

Suggested Reading

Chart Patterns and market’s reaction India Stock Market Traps Stock of the week: Hindustan Unilever Limited Stock of the week: Videsh Sanchar Nigam Limited VSNL

Top Ten Signs a Stock is Going to Move up or down

Disclosure

We have seen in my earlier articles about stock prices moving up or down and possible technical reasons for such movements. Let us discuss them in detail.

Top 10 Summary

Breakout from consolidation patterns Breakout from chart patterns Candlestick patterns Positive and Negative divergences Upward and Downward Gaps Bull traps / bear traps Technical rallies due to overbought and oversold conditions Over manipulations Uniform price volume action Dead cat bounce or fall

1. Breakout from consolidation patterns:

“Consolidation” means the stock moves in a narrow price range (also called sideways movement) for a reasonable amount of time, say few months. During this period, the tussle between buyers and sellers is in equilibrium and once this is disturbed, a “breakout” occurs and prices go up or go down considerably, with good volumes (volume is simply the total number of shares traded in a specified period, i.e. a session, week or month.)

The following example illustrates an upward breakout.

http://groups.google.com/group/theindiastreet/web/KOHINOOR.JPG

Close price moved between 18.50 and 20 for almost a year before ‘breaking out’ on the upper side with volume. Within a short span of time stock gained nearly 250%. Similar pattern is valid for downside breakout too.

2. Breakout from chart patterns:

By chart patterns we mean formation of a geometrical figure such as a rectangle, triangle, wedge or special shapes such as cup and handle, flag, pennant, head and shoulder etc. These are formed over a period of time as price action continues. Some of the important bullish “reversal” patterns are double bottoms, triple bottoms, inverse head and shoulders; bearish reversal patterns are double tops, triple tops, head and shoulders. By reversal we mean the trend has changed from bullish to bearish or vice versa. Some of the bullish “continuation” patterns are ascending triangles, flags, cup and handle etc; bearish patterns include descending triangle, symmetrical triangles etc. By continuation we mean extension of the current uptrend or downtrend.

Following example describes a “double top” pattern.

http://groups.google.com/group/theindiastreet/web/ANDHRSUGAR.JPG

There are 2 peaks in this pattern. First one registered a vey good volume when buying was at full swing. The second peak does not show similar volume which implies that the investors are not much interested in the stock. As a result, downtrend starts and stock breaks its support (a price at which buyers are expected to enter and push prices up). Once this happens, prices fall continuously due to lack of buying interest. This is a “bearish” pattern.

3. Candlestick patterns:

Candlesticks originated in Japan and are in use since 16^th century. A candlestick pattern may consist of two, three or more candlesticks. Common examples are engulfing pattern, harami pattern etc. These can be visualized to be like eclipses. When formed during a corrective decline in an uptrend, these patterns offer trade opportunities, as sellers fade out and buyers enter the market.

In the example given below, a “red” candle (i.e. open price of the day is higher than close price) is engulfed (covered) by a “green” candle (i.e. close price is higher than day’s open price). This means that after a decline in price, at support levels buyers enter and extend buying support. This is usually confirmed by another green candle and higher trading volumes on the next day (see the chart).

http://groups.google.com/group/theindiastreet/web/SCI.JPG

4. Positive and Negative divergences:

These are considered to be signals of major shifts in price movement. A “positive” divergence occurs when a stock falls to a new low but a technical indicator such as MACD (moving average convergence divergence) makes a new high. A “negative” divergence occurs when stock makes a new high, but a technical indicator fails to achieve the same.

The chart displayed below shows an example of “negative” divergence.

http://groups.google.com/group/theindiastreet/web/VIKASHMET.JPG

5. Upward and Downward Gaps:

An upward gap occurs when today’s low is higher than yesterday’s high. A downward gap occurs when today’s high is lower than yesterday’s low. These gaps indicate strong demand for the stock when accompanied by good volumes.

Here’s a case of upward gap:

http://groups.google.com/group/theindiastreet/web/JAGRAN.JPG

The stock gained more than 30% after the upward gap formation. Needless to mention that the upward gap formed in an uptrend has more significance than the one formed in downtrend.

6. Bull traps / bear traps:

These are special situations in which the stock may break its resistance to form a new uptrend; but due to lack of buying support it may fall again to original levels. Bear traps are formed when a stock breaks its previous low but instead of going down further, the prices move up as a result of aggressive buying. These do not occur every time resistances or supports are broken.

http://groups.google.com/group/theindiastreet/web/AARTIIND.JPG

In the above chart, the support was broken on June 7 this year. Instead of more sellers coming in, buying started vigorously and the stock nearly doubled. But during the corrective decline no major support was available and it came down to its previous resistance levels.

7. Technical rallies due to overbought and oversold conditions:

Stock prices move up and down endlessly. Once an ‘overbought’ or a saturated condition is reached, sellers enter to book profits. As a result prices fall to their support levels. In case of oversold conditions, buyers enter to take new positions. These are technical rallies, which usually occur at critical retracement levels of 38.2% and 61.8% retracements.

http://groups.google.com/group/theindiastreet/web/PRITHVI.JPG

In the chart shown above, the stock had closed below its 61.8% retracement level which is a critical support. The bulls immediately pushed up the prices above its previous high. This is a case of a technical rally.

8. Over manipulations:

We do know that stock prices are determined by the market participants. But in some cases, we find only buying or sometimes only selling. In other words, once a stock begins to trade it hits the upper circuit or lower circuit. This can be considered as a case of “over manipulation” and usually occurs in low volume, illiquid stocks. In high volume stocks invariably intra day trading takes place. So the possibility of occurrence of “freezes” is minimal.

http://groups.google.com/group/theindiastreet/web/ATLANTA.JPG

Watch how many days the stock has hit upper freezes during its first uptrend. During the downtrend, it does exactly the reverse – leaving sellers stranded. This could be regarded as a one sided price movement for most of the time.

9. Uniform price volume action:

In an healthy uptrend, increase in volumes is accompanied by increasing prices and during a pull back volumes dry up as prices decline. This is reversed in a downtrend, as volumes increase while prices decrease and during a pull back volumes decrease as prices increase. Following example depicts this action.

http://groups.google.com/group/theindiastreet/web/STERLINBIO.JPG

Uniform price volume action can be seen in the above chart. During uptrend prices rise and so are volumes; during a downtrend prices drop and so are the volumes. This is an indication of a ‘normal’ uptrend. However, it does not occur in all the stocks all the time.

10. Dead cat bounce or fall:

The term dead cat bounce means that the stock has staged a smart recovery or moderate gain after a steep fall. The same thing can be considered for a fall too. After gaining moderately the stock can fall heavily. These occur due to technical reasons such as coveing up short or long positions. If the stock falls back to its original level after the recovery it is a bounce. Otherwise, it could be a new bottom.

http://groups.google.com/group/theindiastreet/web/BAJAJHIND.JPG

In the above example it can be seen that the stock rallied signficantly for a few days only to decline again and reach further lows. This type of a rally should be used only to exit the stocks.

Sundaramurthy Vadivelu

These 5 India Stocks Set to Move Up in the Short Term

Analysis of select India stocks (short term perspective)

Disclosure

In this article let us review some stocks which are technically bullish for the short term. As I have mentioned in my earlier articles these stocks are selected either from A category or B1 category of BSE (Bombay Stock Exchange). This helps in eliminating illiquid stocks, those with listing related issues etc.

Arvind Mills Limited:

This is a very popular, fundamentally good textile stock. It has a P/E ratio of 40 and book value of 70. During the financial year 2006 – 07 the company has reported a net profit of Rs.121.34 crores. But what has happened in the last few years to the stock price? Let’s see the price chart below.

http://groups.google.com/group/theindiastreet/web/ARVINDMILL.JPG

The weekly chart displayed above indicates clearly that the stock has fallen from its resistance zones at 148.30 (September 2005) to 41.80 in April 2007. How do we compare the financials for 2006 – 2007 and the stock price then? On March 31, 2006 the stock price was 100.50. Exactly a year later it was 43.45.

I have been writing in my earlier articles that the stock prices always discount other criteria. A good profit making company, with strong fundamentals, has not attracted the investors for more than a year. This is where technical analysis outscores fundamental analysis.

For the short term, watch the daily chart. We can see the strong consolidation between April and July this year. The low made by the stock on April 2 has remained intact. The resistance at 49.20 has been broken on July 10 with volumes. The “dark cloud cover” candlestick pattern on July 5 has been nullified by a green candle on July 6.

Moving ahead, the stock is expected to continue its uptrend. The next resistances for the stock are at 63.25 and 72.70.

Gujarat Narmada Valley Fertilizers Company Limited:

The company’s manufacturing facilities at Bharuch, Gujarat produce fertilizers such as urea, ammonium nitrate, ammonium phosphate, diammonium phosphate, miurate of potash and chemicals such as methanol, acetic acid, formic acid, nitric acid and ammonium nitrate. The company has the world’s largest single stream fuel oil based ammonia - urea plant. It is also India's only producer of glacial acetic acid through cutting edge methanol route. The company reported a net profit of Rs. 326.47 crores in the financial year 2006 – 07.

In the stock market, the stock has really struggled for more than a year. It fell from its previous high of 144.95 in May 2006 to 78.50 in June 2006. It didn’t pierce its resistance at 116.90 until yesterday (July 11). Watch the “cup and handle” breakout chart pattern. We have discussed about this for polyplex corporation in my previous article, “5 India Stocks You Need to Own Now”.

http://groups.google.com/group/theindiastreet/web/GNFC.JPG

The cup and handle pattern has taken about 6 months time, as can be seen in the chart. The stock is expected to test its previous high of 144.95. The stock is also bullish on long term (monthly charts).

Power Finance Corporation Limited:

PFC provides financial products and services like project term loan, lease financing, direct discounting of bills, short term loan etc. for various power projects in generation, transmission, distribution sectors as well as for renovation and modernisation of existing power projects.

http://groups.google.com/group/theindiastreet/web/PFC.JPG

The stock has been in consistent uptrend since April this year. Yesterday its previous resistance at 166.80 has been broken. The stock has completed one full elliot wave cycle; it is in the first wave of a fresh cycle. Any correction/decline in the stock is a good opportunity for entering the stock. Next targets for the stock are 193 and 209.

Parsvnath Developers Limited:

This stock is one of the constituents of the recently introduced BSE Realty Index.

The New delhi based real estate company has presence in 46 cities and 17 states across the country. The company has a diversified portfolio with projects varying from residential complexes to commercial/shopping centers, multiplexes, from metro malls at Delhi Metro Rail Corporation stations to Hotels and IT Parks, and integrated townships. The company has approvals for 12 Special Economic Zones from the Ministry of Commerce, which have financial outlay of Rs. 37,500 crore in next 5 years. The company reported a net profit of Rs.292.21 crores for the financial year 2006 – 2007 with diluted EPS of 18.16.

Technically, the stock has consolidated from April 25 to July 2 this year. It is currently in its fifth wave. A two month consolidation pattern can be seen in the chart below.

http://groups.google.com/group/theindiastreet/web/PARSVNATH.JPG

The first wave, was very small; the second wave almost tested its previous low. The third wave wasn’t lengthy either. The stock has formed a near “triple bottom” as shown above. It has broken out on July 3 with volums. Once again it has started its uptrend after correcting for a couple of days.

The next target for the stock works out to 440 which is 61.8% retracement from a low of 221.10.

Tata Metaliks Limited:

Tata Metaliks is engaged in the business of manufacturing pig iron. Its plants are located at Kharagpur (West Bengal) and Redi (Maharashtra). The company provides its customers with critical support across their entire business cycle viz. raw material, process and end products. The company reported a net profit of Rs.29.51 crores for the financial year 2006 – 07 with EPS of 11.67.

This stock has also been in consolidation since April. It has broken its resistance at 136.95 on July 11. Like the Parsvnath, this has also completed one full elliot wave cycle and currently on its first wave. Corrective declines may be used to enter this stock. The next resistances for the stock are at 158 and 173.95.

http://groups.google.com/group/theindiastreet/web/TATAMETALI.JPG

SUNDARAMURTHY VADIVELU