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Infy, Sumitomo Chemical, MTAR Tech; top picks from Anand Rathi for May 27

Over the past few months, Infosys' stock has been consolidating within a narrow trading range, approximately between Rs 1,400 and Rs 1,450

The attrition rate at Infosys touched a record high of 27.7 per cent in the fourth quarter of FY22 on an LTM (last twelve months) basis, the company revealed
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The attrition rate at Infosys touched a record high of 27.7 per cent in the fourth quarter of FY22 on an LTM (last twelve months) basis, the company revealed

Jigar S Patel Mumbai

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Infosys 
Over the past few months, Infosys' stock has been consolidating within a narrow trading range, approximately between Rs 1,400 and Rs 1,450. This period of consolidation indicates that the stock was moving sideways without any significant upward or downward momentum. Recently, however, the stock price broke out of this range, moving above the R 1,450 level and maintaining its position above this previous resistance level. This breakout suggests a potential shift in market sentiment from neutral to positive.

From a technical analysis perspective, the daily stochastic indicator, which measures the momentum of the stock, has reversed direction from the 60 level and is now approaching the overbought zone. This shift in the stochastic indicator implies increasing buying pressure, which is a bullish signal and suggests that the stock may continue to rise.

Based on these observations, we recommend that investors and traders consider taking a long position in Infosys within the price range of Rs 1,445 to 1,470. The target for this trade is an upside of 1575, which represents a significant potential gain. To manage risk, a stop-loss should be placed near Rs 1,399 on a daily closing basis. 

Sumitomo Chemical India
Sumitomo Chemical India has recently faced a significant decline in its stock price and is currently trading around Rs 418, which is close to its 200-day Exponential Moving Average (DEMA). This proximity to the DEMA suggests that the stock might find support at this level, as the 200-day DEMA is commonly regarded as a crucial indicator of long-term trends and support. 

Additionally, technical analysis reveals that the daily Moving Average Convergence Divergence (MACD) indicator has formed a bullish crossover. This occurs when the MACD line crosses above the signal line, indicating a potential shift from a downward trend to an upward trend.

Moreover, a bullish Bat pattern has appeared on the weekly chart. This harmonic pattern typically signifies a reversal in the market, suggesting that the recent downtrend may be nearing its end and an upward movement might be forthcoming. These combined indicators—the support level near the 200-day DEMA, the bullish MACD crossover, and the bullish Bat pattern—suggest a potentially favorable buying opportunity for investors.

Based on these positive technical signals, we recommend that traders and investors consider entering long positions in Sumitomo Chemical India within the price range of Rs 430-440. Our target for this trade is Rs 495, which represents a substantial potential gain from the current levels. To manage risks effectively, we advise setting a stop-loss at Rs 405 on a daily closing basis. 

MTAR Tech
After peaking around the Rs 2,923 level, MTAR Tech experienced a significant downturn, losing approximately 1260 points, which represents a substantial 43% decline in its overall value. 
This sharp decrease indicated a strong bearish phase in the stock's performance. However, over the past week, the stock price has found stability within the 1800-1900 range, forming a solid support base. This stabilisation suggests that the selling pressure has subsided and the stock may be preparing for a potential rebound.

During this period of consolidation, a bullish divergence has emerged on the daily MACD (Moving Average Convergence Divergence) scale. 

A bullish divergence occurs when the stock price makes new lows while the MACD indicator makes higher lows, suggesting that the downward momentum is weakening and a reversal might be on the horizon. This positive shift in market sentiment, indicated by the MACD, is a bullish signal that the stock could experience an upward movement soon.

Given these technical developments and observed chart patterns, it may be prudent for investors to consider initiating buy positions in MTAR Tech within the Rs 2,100-2,150 price range. The target for this trade is an upside of Rs 2,450, which reflects a significant potential gain from the current levels. To manage risk effectively, it is advisable to set a stop-loss order at 1962 on a daily closing basis. This stop-loss level is intended to protect against further declines, ensuring that potential losses are minimised if the stock fails to follow through on the anticipated upward movement.

(Jigar S Patel is a senior manager of equity research at Anand Rathi. Views expressed are his own.)

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First Published: May 27 2024 | 6:41 AM IST

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