Analyzing India

ITC and Adani Ports


Before I begin, let me wish all our readers, friends and colleagues a very Happy Holidays and the best of times to come in 2019!

The Indian Equity markets have witnessed immense volatility over the past couple of days. Amid this volatile environment, it makes sense to adopt a stock-specific view. The Infrastructure Index has moved into the leading quadrant of our RRG (Relative Rotation Graph) and the FMCG pack has shown sharp improvement on the relative momentum front. A few stocks among these groups are set to outperform relative to the broader markets; let's take a look at a stock from each of these groups.

ITC.IN (ITC Limited)

ITC.IN has underperformed the broader markets for a period of many months. Presently, it is seen resting at multi-month pattern supports and has shown signs of resuming its up move. The stock is still not having the best of times, but it does have a weight of 42.70%, which is the single largest weight in the FMCG Index. 

After trading without any directional bias for most part of 2017 and 2018, the stock saw a sharp up move beginning July 2017, which took the stock to its high of 322.95. In the corrective decline that followed, the stock tested the 263 level in the month of October. The stock hit support thrice on the rising trend line, which marked a series of progressively higher bottoms at 259, 263 and 268.

On the daily charts, the stock is consolidating near its 50-DMA and 200-DMA, which are 249.42 and 279.69 respectively. The stock has closed at these levels and can be seen attempting to move past them. On the weekly charts, ITC is seen resting at its 50-Week MA, which is presently at 277.43. ITC also has a multi-month rising trend line support. The RS Line on the weekly charts is seen rising and currently remains above its 50-Week MA, indicating the end of its prolonged underperformance.

The Daily MACD has shown a positive crossover; it is now bullish and is trading above its signal line. PPO has turned positive; RSI remains neutral and shows no divergence against the price.

There is a chance ITC will resume its up move, meaning the stock could potentially return ~8% from the current level of 278.15. Any move below 268 would be negative for the stock.

ADANIPORTS.IN (Adani Ports and Special Economic Zone Ltd.)

In early 2018, ADANIPORT.IN marked its high at 450 and halted a multi-month up move that had begun in mid-2016. Beginning in the second half of January 2018, the stock started a corrective retracement, trading in a falling channel and marking lower tops. The stock took support at 294 but soon pulled up above the 200-Week MA. The stock is showing signs that point towards upward revision in prices over the coming days.

As seen in the chart above, although the stock has marked lower tops for the larger part of this year, it appears to be forming a complex Inverse Head & Shoulders formation. This is not a classical inverse H&S and may not necessarily result into similar measuring implications, but it certainly exhibits a buoyant undercurrent in the stock.

The stock has attempted to move past the 200-DMA, which is 368. On the Weekly Charts, it has halted at the 50-Week MA, which is presently at 374, and is making attempts to penetrate it. It is important to note that we have three more sessions to go in this week - the weekly bar is not yet complete.

ADANIPORT.IN remains in a continuing buy mode on the weekly MACD; PPO remains positive. The stock has attempted to move past the falling trend line resistance on the weekly charts. This trend line is drawn from the high of 450, which joins the subsequent lower tops.

The RS Line, on both the daily and weekly charts, has ended its multi-month decline and changed its trajectory. They are trading above their 50-period MA, confirming a likely reversal of trend. 

Despite the Inverse Head & Shoulder formation being not classical, the most likely resolution of such a pattern is an upward revision of prices. The stock has potential to return ~11% from the current level of 372.90. Any move below 347 would be negative for the stock.

Milan Vaishnav, CMT, MSTA
Consulting Technical Analyst

Disclosure pursuant to Clause 19 of SEBI (Research Analysts) Regulations 2014: Analyst, Family Members or his Associates holds no financial interest below 1% or higher than 1% and has not received any compensation from the Companies discussed.

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Milan Vaishnav
About the author: , CMT, MSTA is a qualified Independent Technical Research Analyst at his Research Firm, Gemstone Equity Research & Advisory Services in Vadodara, India. As a Consulting Technical Research Analyst and with his experience in the Indian Capital Markets of over 15 years, he has been delivering premium India-focused Independent Technical Research to the Clients. He presently contributes on a daily basis to ET Markets and The Economic Times of India. He also authors one of the India's most accurate "Daily / Weekly Market Outlook" -- A Daily / Weekly Newsletter,  currently in its 15th year of publication. Learn More
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