Query Corner: Dena Bank testing key medium-term resistance

Please advise on the medium- and long-term out look on Graphite India. Can it be bought at current levels?

Anil

Graphite India (Rs 84): The long-term trend in Graphite India continues to be up. The correction from 2010 has retraced only half the gains made since 2009. The stock has key long-term supports at Rs 65 and Rs 55. Strong close below the second support is needed to turn the long-term view negative.

That said, the stock is currently struggling to cross over the medium-term hurdle between Rs 90 and Rs 100. It is currently reversing lower from this level and failure to surpass this resistance will make the stock move in the zone between Rs 55 and Rs 100 for a few more months. Strong close beyond Rs 100 will take the stock to its long-term ceiling at Rs 110.

Investors with short- to medium-term perspective should sell the stock if it moves below Rs 75.

I have purchased shares of Dena Bank at an average price of Rs 90. What is the 3-month outlook for this stock?

J.H. Krishna Murthy

Dena Bank (Rs 106.4): This stock has had a strong rally since the beginning of this year and it is up 130 per cent from its January low at Rs 47.5. Investors, however, need to tread cautiously at this point since the stock has reached its key medium-term resistance at Rs 112. It is possible that the stock reverses lower from this level and declines to the supports at Rs 87 and Rs 72.

Investors with a short investment horizon can, therefore, take some profits at this point and hold the rest of their holding with stop at Rs 85. The stock needs to make a strong move beyond Rs 112 to signal its intention to move towards the 2011 peak at Rs 151.

Medium-term investors should exit the stock on decline below Rs 72.

One can invest in the share market either by direct share investments by one self or through mutual fund route. Both incur transaction costs, service charges, etc. If one's investment horizon is long-term — say more than 5 years, and if one is mainly interested in large-cap shares without much churning of the portfolio, can we say that direct investment will be more cost-effective for the long-term?

Dr Balasubramanian

You are right in stating that direct investment in stocks is more cost-effective since the transaction cost for share purchase is incurred only once, at the outset. Mutual funds on the other hand deduct expenses up to 2.5 per cent of the fund assets under management, every year.

That said, there are tax advantages in investing in MFs. MFs do not have to pay capital gains tax when they churn their portfolio. Secondly, dividend distributed by mutual funds is not taxed in the hands of the investor.

Again investing through mutual funds is better for investors who do not have the time to read up and analyse the stocks held in their portfolio. MFs have fund managers who along with the research team can track the stock fundamentals and take appropriate action, much better than most individuals can.

Please explain your views on short- and medium-term target of Financial Technologies.

Arun

Financial Technologies (Rs 995.1): Financial Technologies is in a long-term downtrend. The 2009 rally has helped to mark the zone around Rs 1,700 as the long-term ceiling for the stock. The stock could attempt to move to Rs 1,700 or Rs 2,060 over the longer time frame. Zone between Rs 400 and Rs 500 will serve as a long-term base and investors can accumulate the stock every time it reaches this level.

The short as well as the medium-term trend in the stock is currently up. Short-term targets for the stock are Rs 1,122 and Rs 1,267. Short-term investors can hold the stock with the stop-loss at Rs 950.

Medium-term target on move beyond Rs 1,267 is Rs 1,670. Stop-loss for these investors can be at Rs 730.

I bought TVS Motor at Rs 66. I would like to know the medium-term target for this stock.

Prakash S. Bokil

TVS Motor (Rs 41.1): TVS Motor has key long-term support in the zone between Rs 30 and Rs 38. Though the stock threatened to breach this support zone in June, it is now moving higher from this area. The stock is in a medium-term uptrend since the low of Rs 32. This can now serve as the stop-loss for both medium- and long-term investors.

That said, the stock needs to cover a lot more ground before it moves to an area of relative safety. Key medium-term hurdle for the stock is at Rs 53. Failure to clear this level will result in the stock vacillating between Rs 30 and Rs 50 for a few more months.

Investors with medium-term horizon should, therefore, exit the stock if it struggles to clear this resistance. Medium-term targets on a move above Rs 53 are Rs 60 and Rs 66.

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