The Hindu Business Line : Fundamentals vs technicals

I am one of the ardent readers of your column. On a few occasions, you have given sell recommendation on fundamentally sound stocks such as Satyam Computer (a few years ago) and Tata Engineering and Tata Steel more recently. I am not convinced about these recommendations as they are fundamentally sound companies. What is your take on this issue? — Col M.G. Kapoor

The analysis and views featured in this page are based only on the analysis of historical share price action. We do not attach importance to fundamentals while providing the recommendations based on this analysis.

We would also like to emphasise that not all recommendations featured on this page would turn out to be correct. There will be instances where our analysis could go awry. It does not mean that "technical analysis" as a subject is flawed. The problem lies with the person concerned who uses this study to arrive at conclusions.

While analysing the past recommendations, it would be crucial to look into factors such as trigger levels and subsequent changes in views. We have reversed the earlier faulty recommendation on quite a few occasions and we believe this cannot be avoided. The most recent case was Tata Engineering where we provided a revised upward target last week after having given a `sell' earlier.

The `sell' view was negated as the stock failed to drop below the prescribed level and moved past the positive trigger level.

In this context, we would also urge investors to realise that just because the company is fundamentally sound, it does not mean that the share price would keep moving up.

However strong a company may be fundamentally, there would always be a stretch of time when the share price would get into a corrective phase and underperform in relation to market indices. In such a scenario, there is no point being wedded to a stock just because the company is fundamentally strong. Churning of portfolio and periodical profit-booking are essential facets of successful stock market investing.

Tata Steel is a classic example. Despite its fundamental strengths, the stock has been stuck in a narrow trading range in 2005. The stock was a gross under-performer in relation to the Sensex or Nifty, which have posted gains in excess of 35 per cent during this period.

Instead of staying invested in Tata Steel during 2005, the returns would have been far better had you put your money in an index fund.

Kindly let me know the prospects of ICICI Bank and Hindustan Lever bought at Rs 510 and Rs 178 respectively. — B. Esakkimuthu

ICICI Bank (Rs 585): The outlook is positive and a move to Rs 635-640 appears likely. The positive outlook would be negated if the stock closes below Rs 520. Taking into account the positive outlook and your entry price, there is no reason to exit now. Hold with a stop-loss at Rs 520. Partial profit-booking may be considered on the evidence of resistance at around the target zone.

Hindustan Lever (Rs 197): This is one of the stocks we are bullish from the universe of stocks that constitute the Nifty. The share price could move to Rs 235-240 in the near term. Remain invested with a stop-loss at Rs 165. Fresh exposures may also be considered at prevailing levels and on declines, with a stop-loss at Rs 165.

I bought Orient Abrasives at Rs 41. Kindly let me know if it is advisable to hold the stock from a long-term perspective of about two years. — K. John Jayakar

Orient Abrasives (Rs 32): The long-term outlook is bullish and would remain so, as long as the share price holds above Rs 24. The stock appears to have the potential to move to Rs 48-50. This view would be negated on a close below the stop-loss level of Rs 24. Remain invested while fresh exposures may be avoided.

Should I hold or sell Jindal Polyfilms bought at Rs 345 and Suven Life Science at Rs 100? — K. Mariappan

Jindal Polyfilms (Rs 263): After touching a high at Rs 504.7, the stock has been in a major corrective phase in the recent months. The near-term outlook appears bearish, as the downward corrective phase does not appear complete. A drop to Rs 220-225 range appears likely. At the moment, only a weekly close above Rs 290 would blunt the bearish outlook. Risk-averse investors may sell at least a portion of their holdings now. Evidence of support at Rs 220-225 may be used to take fresh exposures.

Suven Life (Rs 79): The share price is ruling close to the support level at Rs 72. A breach of this level would result in a drop to the next support range at Rs 65-66. Remain invested with a stop-loss at Rs 72. Fresh exposures may be avoided. The recent price pattern indicates that the stock could move to Rs 105-110. This view would gain credence once the share price closes above Rs 88.

Kindly let me know the prospects of Kajaria Ceramics and Balrampur Chini purchased at Rs 42 and Rs 110 respectively. — C.M. Manohar

Kajaria Ceramics (Rs 45): There is no change in the view expressed earlier (edition dated December 18, 2005). Please visit the archives section of our Web site www.blonnet.com for further details.

Balrampur Chini (Rs 117): The recent price patterns suggest that the stock could move to Rs 130-135 shortly. The outlook would be valid as long as the price holds above Rs 96. Remain invested with a stop-loss at Rs 95. Fresh exposures may also be considered with the same stop-loss. Sell a portion of the holding if the stock faces resistance at the target zone of Rs 130-135.

I hold Unichem at an average price of Rs 206 and Glenmark Phama at Rs 256. Please advise whether to hold or sell? — Dinesh Shah, N.R. Srinatha

Unichem (Rs 311): The stock is in an uptrend that is not complete as yet. The recent recovery has pushed the stock into an overbought zone. The share price is likely to remain either range bound or seek lower levels in the near term. The next leg of the upward move would continue on the completion of the anticipated corrective phase. Hold with a stop-loss at Rs 275. Fresh exposures may also be considered with the same stop loss as the stock could move to Rs 375-380.

Glenmark Pharma (Rs 313): Shareholders may remain invested with a stop-loss at Rs 285, as the long-term outlook is positive. The share price could move to Rs 365-370 range shortly. This view would invalidated on a close below Rs 285. Fresh exposures may be avoided for the moment.

Please suggest whether fresh exposure is advisable in MphasiS BFL and Gujrat NRE Coke. — Kumar Rahul & Sulabh Sharma

MphasiS BFL (Rs 149): The share price has been in a prolonged phase of correction since early 2004. There are no signs of completion of this correction. A close above Rs 170 would confirm the completion of the corrective phase and the stock could move subsequently to Rs 205-210. On the other hand, a close below Rs 115 would result in an extended phase of bearishness. Stop-loss for long positions may be placed at Rs 115.

Gujarat NRE Coke (Rs 104): Remain invested with a stop-loss at Rs 90 as there appears to marginal downside risk. The stock is likely to consolidate around prevailing levels and commence a fresh leg of an upward move shortly. A move to Rs 135-140 range appears likely. This view would be negated on a close below Rs 89.

What is the outlook for Siemens bought at Rs 3,321? — Kavita Sharma

Siemens (Rs 3,615): The share price has on an upward spiral during 2005. After moving to a high of Rs 3,690, the stock has been in a corrective phase in the recent weeks. The price patterns do not suggest the completion of the earlier upward move. There is still some upside potential extending up to Rs 4,200-4,300. There is no reason to exit at prevailing levels, as the major trend is bullish. Long-term investors may also buy this stock with a stop-loss at Rs 3,350. Shareholders who have entered at lower levels may settle for a stop-loss at Rs 3,100.

(Note: The analysis and opinion expressed in these columns are based on the technical analysis of the past price behaviour. Opinion and price targets are based on the Elliott Wave Analysis. The stop-loss level provided with the recommendation is important. The original view would stand negated if the stop-loss level is breached. There is a risk of loss in trading)

Readers can send in their queries, on not more than two companies, to

techtrail@thehindu.co.in

Queries can also be sent by post to:

Tech Trail, 859/860 Kasturi Buildings, Anna Salai, Chennai 600002.

We would endeavour to answer as many queries as possible. However, constraints of space will limit the responses featured under this column.

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