Stock calls by Angel Broking: Buy Vinati Organics, Sell Tata Steel

On Friday, NRB Bearing's stock finally witnessed a breakout from the congestion zone

Nifty Outlook 

Benchmark consolidates, midcaps continues their dream run 

Our markets underwent some correction on August 14, 2020, and, in the process, tested a key support of 11,100. Fortunately, this corrective move did not extend further as we kickstarted the week higher on Monday on the back of a cheerful mood across the globe. This was followed by a strong trading session where we witnessed some robust moves in index heavyweights as well as the broader market. During the remaining part of the week, the index was just trapped in a range and had extremely lethargic moves to register its highest weekly close after February 20, 2020.  

Barring the first couple of days, it was once again a boring week for index specific traders. Although, the Banking, Metal and Capital Goods managed to chip in to some extent, but the real outshining space has been the mid and small cap universe. Clearly, there has been no stopping for this space and especially the way these stocks just took off in the last three weeks. When midcap rally starts, it generally creates a euphoric situation and this is clearly what we are experiencing for the past few days. Nobody knows when and where it’s going to stop and at the same time, it’s hard not to participate also. The overall structure remains sturdy; but we believe that sooner or later, the market is likely to witness some correction, which would be healthy in the longer run.  In the last five months, forget bearish, we did not even sound cautious and used all dips to get into the market. But now looking at a few observations, we do not want to maintain similar optimism purely with the short-term view.  

Last week, we had mentioned about the 78.6 per cent retracement of the entire fall as well as the 100 per cent ‘Price Extension’ of crucial swings. Nifty has marginally surpassed it and may even extend further, but even if it moves towards 11,450-11,500, we continue to advise booking profits in rallies. On the daily chart, we can see a small ‘Rising Wedge’ and ‘Bearish Wolfe Wave’ pattern. A move below 11,250-11,200 would confirm a near term reversal to undergo some price correction in coming days. As far as the NIFTY MIDCAP 50 index is concerned, although it has surpassed the weekly ‘200-SMA’ marginally, we advise taking some money off the table now and aggressive bets should ideally be avoided overnight. Adding to all this, we would like to draw attention towards an important development in ‘US DOLLAR INDEX’. We have seen massive correction in this over the past few months, which has triggered some gravity defying moves in equity markets; but now, this index seems to have rebounded from key supports along with the ‘Positive Divergence’ in RSI. Hence, further pullback in the DOLLAR index can lead to some corrective moves, going forward. By mentioning all these points, we do not expect a complete reversal, rather such intermediate correction is considered a healthy development and provides better opportunities for those who have missed the bus in the last few months.      

Stock recommendations: 

NSE Scrip Code – NRB BEARINGS 

View  –  Bullish 

Last Close  – Rs. 85.50 

Justification – The entire Auto and Auto ancillary space is on a roll since last few weeks. However, this stock is yet to show similar strength as compared to some of its peers. But, the way charts are shaped up, the stock prices are about to catch up in coming days. Price wise, recent recovery from lower levels was followed by a consolidation for nearly a month. On Friday, we finally witnessed a breakout from the congestion zone. If we look at the volume activity, it has risen substantially if compared with the average daily volumes. In addition, the ‘RSI-Smoothened’ is about to enter a bullish territory i.e. beyond the 70-mark. Hence, we recommend going long from current level to a decline up to Rs.84 for a target of Rs.91-96 over the next few days. The stop loss can be placed at Rs.81.70.  

NSE Scrip Code – VINATI ORGANICS 

View – Bullish 

Last Close –  Rs 1,053.65 

Justification – Post the spectacular recovery in the month of April, the stock prices did nothing. It was consolidating in a slender range and kept hovering around the ‘200-SMA’ on daily chart. Since the last few days, we have been observing some in-between small up move in the stock along with spike in volumes. Finally, on Thursday, these small up moves got converted in a huge intraday rally to go pass all near term barriers. Since, it is accompanied by sizable volumes, the stock has a potential to perform well in coming days. Hence, one can look to go long for a target of Rs.1,130 over the next few weeks. The stop loss can be placed below Rs.999.

NSE Scrip Code – TATA STEEL 

View – Bearish 

Last Close – Rs. 428.85 

Justification – After a long underperformance, the Metal space took a U-turn and has managed to give a stupendous move in the last three months. In the initial move, we managed to become early entrants and could ride until the first week of August month. However, looking at the overbought condition and some time-wise analysis, we failed to catch the last 6-8 per cent move in these Metal names. In fact, some of the STEEL counters just rallied as if there is no tomorrow without giving a small decline also. Basically, this is the nature of METAL counters and historically it’s proven when they rally, they just keep giving gravity defying moves and vice versa. Although, it’s difficult to expect weakness in such high beta counters when they are in a strong uptrend, we sense some profit booking taking place in the coming week. TATASTEEL has tested a strong resistance zone of 78.6 per cent retracement as well as the multi-year downward sloping trend line. We recommend going short around 430-434 for a downside target of Rs. 402. The stop loss needs to be maintained at Rs.443.  

NSE Scrip Code – TATAMOTORS 

View  – Bearish 

Last Close  – Rs. 120.90 

Justification – Recently, the entire AUTO pack performed well and this, one of the laggards, too managed to clock handsome gains. From March lows, the stock prices have almost doubled, but overall, it is still trading at much lower levels. Last Friday, we finally saw some pause to the recent up move and price-wise, we could see a formation of ‘Bearish Engulfing’ pattern on daily chart. Since the pattern has developed precisely around 200-day SMA, the stock can undergo some corrective move in coming days. During this week, we already witnessed some profit booking; but the way its closed around the lower end of the weekly range, we expect the corrective move to extend further. Hence, we recommend going short around 122-124 for a downside target of Rs 113. The stop loss needs to be maintained at Rs.128.40.
Disclaimer: Sameet Chavan is Chief Analyst- Technical & Derivatives at Angel Broking Ltd. Views are personal.