Broking firm ICICI Direct has selected JK Tyre as its techno-funda pick.
The strategy suggested by the firm says that investors should buy JK Tyre in the range of Rs. 102.00-107.00 for a target of Rs. 145.00 with a stop loss below Rs. 95.00 on a closing basis. The report released by the firm says that the share price of JK Tyre has concluded a healthy corrective phase after taking support at its 52 week EMA placed at 92 levels.
The pullback towards the long term average after over a year triggered value buying and resulted in the formation of an Engulfing line bull candlestick pattern on the weekly charts. An engulfing line bull candle formed after a sizable correction and at a key support area signals a trend reversal implying resumption of the upward momentum, auguring well for the stock, going forward.
The report says that strong up move in the current week has also led to a breakout above the downward sloping trend line, which has acted as a key resistance in the entire corrective decline since the December 2014 life high of Rs. 163 thus, providing a fresh entry opportunity for medium-term players to ride the next up move.
Another significant observation on the volume front is that rallies throughout 2014 enjoyed strong investor participation as visible from rising volumes while secondary corrective decline from December 2014 onwards remained low volume affair highlighting larger participation in the direction of primary trend.
The price rebound from the support level is also backed by strong volumes (40 lakh shares) which is almost three times the average daily volume during the corrective phase (15 lakh shares per day) indicating strong investor appetite.
ICICI Direct believes that the stock is attractively poised after the recent cool off and provides a decent reward/risk set-up to ride the next up leg. We expect the stock to head towards Rs. 150 being the 80% retracement of the recent decline from Rs. 163 to Rs. 94.
Fundamentally ICICI Direct is optimistic about the revenue/earnings growth possibilities for JKTIL – the leader and pioneer in the TBR segment. With net debt levels appearing to have hit a peak and likely to ease downwards, it believes that the major market concern is likely to be alleviated.
Post FY16E, strong FCF generation makes us positive on the business as the next phase of growth begins. The firm maintains BUY rating on the stock mainly on expectations of a demand recovery in addition to favourable input cost and its availability at attractive valuation. (Share Manthan, 01 April 2015)
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