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Saturday, September 15, 2012

India is Back on Growth Path! And which Midcap & Smallcap stocks can benefit from Reforms!

Congratulations! India is back on Reform path in a flurry of announcements - both domestic and global - in last two days. We at StockFundoo however pointed the bullish Golden Cross on Nifty five week back on August 8. Read that report here. Golden Cross is a reliable technical indicator which seldom fails. Please remember charts always move much earlier than the news items!

So FDI has opened up in Retail and Aviation, as well as Broadcast and Power Exchanges. Disinvestment in PSU is on its way. Rate cycle will most probably turn around this Monday and gradual rate cuts will happen throughout the next one year. Which all Stocks - Midcaps and Smallcaps stand to benefit out of this excitement. Lets look at charts and figure out!!

Nifty has broken out on charts, but what is happening on Midcaps. They are still lagging, hence the next flood of capital will enter the Midcap space, please see the two charts for comparison:

Pls see the Nifty chart below for Support and Resistance levels on EoD charts. Nifty has nearly reached the resistance zone of 5575-5600, where most of prior bear rallies in 2011 had failed. Pls see the history of this important level in much of later part of 2010. This zone gave a tremendous resistance in all of 2010 and once crossed, 5600 to 6300 happened in less than one month. All call option sellers, selling in September at this level were taken to cleaners and lot of high level resignations happened at PMS firms due to PMS traders losing a lot of client money selling call options, when 600 point rally suddenly happened after breaching 5600! Be afraid, be very afraid of this level!

Ok, so all is well for Nifty, but things are terrible for Midcaps and Smallcaps currently. Nifty Midcap chart has lost its vitality and is caught in a terrible mess of a triangle right now. Midcap index is at 35% lower than its peak levels in 2010 end, which doesn't tell the complete story of how many good quality scrips have lost 70-80% of their market-cap during this duration. These good scrips will help you multiply your wealth many times now, and we look at exploring some of these scrips in this post and subsequent posts.

Midcap index, at 2070 now, will face stiff resistance at 2200-2300 levels, and then subsequent resistance at 2500 and 2650 after that. Journey to 3200 is long and arduous, looking at this chart and may take much of next 6-12 months. Hold your bets and keep adding longs to good scrips.

From the FDI reforms in Aviation, lets look at charts for some of the scrips which would benefit:

Jet Airways, from its spectacular high of 909, hit a terrible low of 168 in Dec, 2011. From these lows, it has handsomely picked up and is trading in a price channel from few months now. Post these reforms in aviation, Jet will breakout of the channel and hit the resistance zones at 500 shortly. After crossing this resistance, next stop would be a impressive 780-800 zone for Jet.

Spicejet has had a equally momentous story. From a high of 93-97 in late 2010, it has crashed to a whooping 15 Rupees in late 2011. From lows of December, Spicejet has picked up and reached its current resistance zone of 36, from where it had a rejection  close on Friday, 14th Sept.
With the opening up of FDI, the scrip would probably crossover its current resistance zone of Rs  36-39 and open above Rs 40. From 40, the journey can be towards resistance of 50, and next level is at Rs 65-70. From 50 to Rs 70, journey would be fast and furious. Fasten your seat-belts please!

Kingfisher is in so much mess, and has most of its operational ability and routes thats its no better than playing a Lottery, so we skip talking about Kingfisher.

From the FDI reforms in Retail, lets look at charts for some of the scrips which would benefit:

In Retail scenario, Pantaloon is obviously the much talked about stock currently. With the load (read asset) shedding the management is undertaking, Pantaloon would have lesser debt load and more agility to move forward on charts!

Pantaloon used to trade at princely highs of Rs 526 on charts in late 2010, where it followed the now common story of crashing to  beastly Rs 125 in late 2011. Rs 125 formed at good double bottom to provide support to Pantaloon, from where it has rebounded to Rs 200 several times in last few months. Thus the scrip has been caught in a price channel of Rs 50 on charts. Breaking this channel would result in scrip facing strong resistance at Rs 235, where several value buyers burnt their fingers, and would be eager to sell and get off.

Once 235 is taken off, price journey would take Pantaloon to Rs 308 resistance levels and Rs 350 is another resistance level on charts. Hence there is good movement possible on this scrip in next few months.

Brandhouse Retail is another scrip which would benefit from the opening of FDI in retail. Lets look at charts and figure out the journey of Brandhouse.From the highs of 57-60 in April of 2010, Brandhouse reached its climax much earlier than others! It fell much of 2010, and substantially in 2011 to a low of Rs 9 per share in 2011 end. The current resistance levels are at 18-19, then at 23, and then at 30. Stock has the potential to move and reach these levels in next few months as things pick up in retail domain.

Cantabil Retail has only seen one side, downside, in its journey  of stock price movement. From a day one high of Rs 120, it has fallen to absymal Rs 14 in late 2011, and currently faces resistance at 25, then 36 and then at 53 price levels. Firm is facing debt issues and hence may profit from FDI investment in its store around the country.

Rei Six ten (6TEN) has numbed value investors through its super blockbuster fall from Rs 250 to Rs 2 in recent lows. This is a chain of convenience stores in Kolkatta, and is promoted by REI Agro group. Its resistance levels are at Rs 5. Rs 11- Rs 13 is a resistance zone and then at Rs 28 and higher.

There are lot more scrips, which would benefit from these reforms and we would write about them in subsequent posts.
Thanks for reading this post and keep writing in to us at


  1. Good article and bullish in nature. Good pick of small/mid cap scripts.

    Certainly the current decisions would help sentiment, fiscal deficit and few sectors. Dr. Manmohan ji, took bold step based on his commendably economic expertise.

    FDI in aviation would be definitely boost for the players discussed here, and I don't see much opposition from public/politics. But FDI in retail won't be smooth ride for the Govt.

    RBI also may not be in a position to cut interest rates immediately on Monday as inflation is not comfortable, though we may see some positive actions, like cutting CRR to mobilize more money into system. If the central bank cuts lending rates, it would be bold step too. Because there will be high reluctance from public/parties on FDIs and diesel prices, central bank can't be sure of whether Govt won't retreat. So, rather than rushing to cut the rates, IMHO it may wait till October review. But some positive actions like CRR, SLR may be reviewed.

    Overall good boost to the market, and I guess it is Chidus effect.

    I know everybody (parties) understands these are needed, but they would go on their political stunt. Remember NDA had increased FDIs in media during its tenure. It is all part of the game. :)

  2. Hello Fundoos,

    I am a regular reader of all your posts. Thanks a lot for all the good work !!

    Can You please analyse CESC technicals in light of FDI in retail and power exchanges. As Cesc has "Spencers" retail chain and definitely a power company. Short/mid/long term term targets for this scrip..I am holding long @323.

    Thanks again.

    Best Regards,

    amitabh agrawal


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