Book profit in Nestle India

B. Krishnakumar

THE Sensex managed to stay above the first support level of 3,900-3,950 mentioned last week.

However, given that the short trend is still down, the Sensex could test the crucial support level at 3,750-3,800. Even if the Sensex manages to stage a short-term rally, the upside potential would be capped at around 4,350.

Given that the downside risk is still a significant 10 per cent from the current level, it would be safer to refrain from taking fresh exposure in top-line stocks. The market's reaction to the petro-product price hike would be a crucial factor in determining the future trend of the Sensex.

However, even if the Sensex was to decline to the 3,750-3,800 range, a medium-term rally of at least 600-700 points would materialise thereafter. Against this backdrop, long-term investors could contemplate an entry into index stocks, particularly top-rung software stocks, once the Sensex declines to the vicinity of the previous low of 3,830.

The focus this week is on Nestle India, BHEL and Global TeleSystems. The short-term outlook for all the three stocks appear positive. However, in the case of Nestle India (Rs 492.8), fresh purchases may be avoided as the scrip still appears to have some downside risk in the medium term.

On the upside, the share price of Nestle could face resistance between Rs 525 and Rs 540. Existing holders could use the price rally either to or past Rs 530 to cut exposures in the company. Fresh short positions may also be contemplated on evidence of weakness at around the Rs 530-535 level.

In the case of BHEL (Rs 104.3), the share price of the company has seen a sharp decline in recent weeks. The stock now appears to be heading towards the short-term support level that exists at the Rs 100-level.

Existing holders could remain invested. Fresh purchases may be contemplated if the BHEL stock manages to seek support at around the Rs 100-mark.

The Global TeleSystems stock too appears to be consolidating around its current level of Rs 1,163. The scrip, which bounced back after touching a low of Rs 1,021, now appears to be headed towards higher levels. Existing holders could remain invested. Fresh purchases may be contemplated on evidence of support around current levels. A decline below the Rs 1,021-level would blunt the possibility of a short-term rally in the stock.

Recommendation follow-up

Last week's recommendation pertaining to Sterlite Industries and Dabur India was almost on course with expectations. As anticipated, the trend in the Sterlite Industries stock was weak with the scrip moving very close to target price of Rs 990, referred last week. The trend in the stock continues to remain weak and price rally could be used to clip exposures in Sterlite.

The stock of Dabur India appears to be consolidating around the current level. The share price of the company appears to be vulnerable towards a decline to the Rs 550-level. Existing holders could remain invested and use intermittent price rally to trim exposures. Fresh purchases may be contemplated on evidence of support at around the Rs 550-mark.

(Note: Recommendations in this column are based entirely on technical analysis of the past price behaviour of the scrip concerned. There is a risk of loss in trading.)