The Hindu Business Line : Query Corner — Reliance Petroleum to consolidate sideways

I am in possession of Reliance Petroleum bought for Rs 230 when it was near its peak in January 2008. What is the short and long-term outlook for this stock? Should I continue to hold it? T V K Sankaran

Reliance Petroleum (Rs 122.7): This stock formed a double bottom at Rs 68 in November 2008 and March 2009 that is a reliable long-term reversal formation and has been in a strong up-trend since then. The stock’s value has more than doubled since March. However the stock faces strong medium-term resistance at Rs 155. That the stock was unable to move above this level in May and June implies that it continues in a long-term down-trend.

The stock can move sideways in the band between Rs 100 and Rs 155 for a few more months.

Decline below Rs 100 will imply that the stock can move lower to its March low at Rs 68. Investors with a medium-term perspective can hold the stock with a stop at Rs 95. If this level is not violated, a rally to Rs 152 or Rs 192 can be expected over the next three months. Key resistances for the next 12 months are at Rs 182 and Rs 210. Investors can pare part of their position if the stock struggles to move above these levels.

I have purchased shares of IL and FS Investment Manager at Rs 140 and Orchid Chemicals and Pharmaceuticals at Rs 136. Kindly advise about the prospects of these stocks. Sumit Chawla

IL & FS Investment Manager (Rs 229.2): This stock has firmly shaken off the bear’s grip that dragged it down from Rs 297 to Rs 68 in 2008. It moved past the key intermediate-term resistance at Rs 212 and has moved close to its previous peak of Rs 297. The stock can witness turbulence close to this level and a reversal from here can cause a decline to Rs 200 or Rs 150 over the medium-term.

Investors with a short to medium-term perspective can book some profit at these levels and hold the rest of their holdings with a stop at Rs 190. Long-term investors can hold with a deeper stop at Rs 145. Target on a break-out above Rs 297 is Rs 363.

Orchid Chemicals and Pharmaceuticals (Rs 128.4): Orchid Chemicals has been on a structural down-trend since April 2006 at the peak of Rs 400. This down-trend appears to have halted at the March low of Rs 56 and the stock is on an intermediate-term up-trend since then. Immediate resistances for the stock are at Rs 160 and Rs 190.

Reversal from these levels will result in the stock fluctuating in the zone between Rs 60 and Rs 160 for a few more months.

Short and medium-term investors should therefore book some profit in the zone between Rs 140 and Rs 160. Target on a break above Rs 160 is Rs 190 and Rs 230.

Please discuss the medium and long-term prospects of Mahindra Lifespace Developers. Stabak Banerjee.

Mahindra Lifespace Developers (Rs 357.9): Mahindra Lifespace Developers has neared the medium-term resistance at Rs 400. The stock could struggle to move beyond this level just yet and a reversal from here can pull the stock lower to Rs 270 or Rs 200 over the medium-term.

Investors with a medium-term perspective can therefore hold the stock with a stop at Rs 265. The long-term 200-day exponential moving average present at Rs 270 will be a strong support over the next 3 months.

Long-term investors can hold the stock with a stop at Rs 195. Target on a break above Rs 400 is Rs 600.

What are the short-term prospects of Axis Bank and Yes Bank? J K Shylaja

Axis Bank (Rs 906.9): In our review of this stock in May this year, we had indicated that Axis Bank would face strong resistance in the band between Rs 900 and Rs 970 and the stock could struggle to move beyond this zone.

The stock peaked at Rs 969 on July 28 and has been on a mild correction since then.

Short-term trend in the stock is up since the July 13 low of Rs 705. A close below Rs 785 is required to negate this view.

Short-term targets on a break-out above Rs 970 are Rs 1,011 and Rs 1,061. If the stock manages to sustain above Rs 970, it can move to its former peak of Rs 1,291 over the medium-term.

Investors should however tread carefully as long as the stock does not move above the key intermediate-term resistance at Rs 970. It can spend few more weeks in the range between Rs 700 and Rs 950 before it attempts to surpass its previous high.

Yes Bank (Rs 167.9): Yes Bank too is hovering between the key intermediate-term resistances of Rs 160 and Rs 187. A strong close above the second resistance would denote that the stock is headed towards its previous peak of Rs 278. But it is quite likely that the stock struggles to get past Rs 187 in the near-term and declines to Rs 124, Rs 108 or Rs 92.

Short-term investors can hold the stock with a stop at Rs 120. A consolidation between Rs 125 and Rs 190 will be construed as positive from a medium-term perspective.

Investors with a long-term horizon can buy the stock in declines as long as it holds above Rs 90.

I have bought Reliance Communication at Rs 261. Please outline the short-term outlook. Rama Krishna Garimella

Reliance Communication (Rs 292.2): In our previous review of Reliance Communications in January this year, we had indicated that the stock could remain in the range between Rs 150 and Rs 300 for a few months before a medium-term low is formed.

The stock bottomed at Rs 132 in March and has been in a medium-term up-trend since then. Key resistances for the short and medium-term are at Rs 360 and Rs 400 respectively.

That the stock was unable to rally beyond Rs 360 in June implies that the long-term trend continues to be down in the stock. Reliance Communication can continue to move in the band between Rs 150 and Rs 400 for a few more months. Immediate supports for the stock are at Rs 247 and Rs 227.

Short-term investors can hold with a stop at Rs 220. Short-term targets are Rs 311 and Rs 360.

Please advise me the long-term outlook for Power Grid purchased at Rs 140. K V G R K Murthy

Power Grid Corporation (Rs 107.1): In our review of Power Grid Corporation in November last year, we had indicated that medium-term resistance band for the stock was in the band between Rs 96 and Rs 110. The stock moved past this zone to peak at Rs 130 in May that is close to the key intermediate-term resistance band at Rs 124.

The area between Rs 125 and Rs 130 is very critical from a long-term perspective. The stock has to record a strong weekly close above this level to indicate that it can move on towards its previous peak of Rs 167.5.

It was however unable to clear this level over the last three months and is in a mild correction. This correction can take the form of a sideways move between Rs 100 and Rs 130 for a few months before the stock breaks out. Targets on a decline below Rs 100 are Rs 91 and Rs 82.

Investors with a medium-term perspective can buy in declines with a stop at Rs 98 while long-term investors can accumulate the stock with a deeper stop at Rs 80.

— Lokeshwarri S.K.

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