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Wednesday, September 16, 2009

Stock Chart Pattern - Tata Chemicals Ltd

The stock chart pattern of Tata Chemicals Ltd, another stalwart from the Tata stable, shows a nice breakout from a bullish consolidation pattern called an 'ascending triangle'.

The company manufacturers a wide array of products including chemicals like soda ash (used in detergents, water and effluent treatment, paper and glass making), sodium bicarbonate (used in pharma industry for making antacids, analgesics, toothpaste), fertilisers (like Urea, DAP, SSP), portland cement (manufactured using the solid wastes generated at its soda ash plant), and packaged salt.

Tata Chemicals has recently acquired a 36% stake in crop protection and pesticides company Rallis India from other Tata group companies, thereby taking its total stake in Rallis to 45%.

Steady growth, low debt/equity ratio, strong cash flows from operations, regular dividend payments make this an ideal 'boring' stock that can find a place in any long-term investor's portfolio.

Time for a look at the one year bar chart pattern of Tata Chemicals:-

Tata Chem_Sep1609

The stock made a double top at 430 in Jan '08 and 440 in May '08, following which the bears really mauled the scrip. It bottomed at 100 in Mar '09. The bull rally took the stock to 266 in Jun '09 - retracing nearly 49% of the bear market fall.

A 3 months period of consolidation in an 'ascending triangle' was followed by an expected upward breakout - thanks to the deluge of FII money into the Indian stock markets this week. But bulls should not start a dance of joy yet.

The stock made a high of 275 and closed at 274 today. There is long-term resistance at the 270-280 zone. Also the 50% Fibonacci retracement level of the entire bear market fall is at 270. The stock has not cleared it strongly enough on higher volumes.

Also note the negative divergences from all four technical indicators. The RSI stopped short of entering the overbought zone. So did the slow stochastic. The MFI is barely above the 50% level. The MACD is marginally positive.

The next few days could be crucial for the stock, and for the market as a whole. If the FII inflows continue, new highs may be the order of each day's trade.

Bottomline? The stock chart of Tata Chemicals has given a mild breakout from a consolidation pattern. Existing investors should wait for the stock to clear 280 before adding more. Patient investors may wait for the next correction to enter.

(Thanks to reader Sujoy for suggesting this stock.)

6 comments:

Madhu said...

Like most other Tata group companies, TC also made an expensive overseas acquisition at a high price when the market was booming.
Strategically Such acquisitions are frustrating for Tatas now.
1. Price was high
2. Almost all acquisitions were made in developed countries which are worst hit by the crisis
3. Cost of operations are prohibitive
4. Cost of shut down is even more prohibitive due to stringent laws.
5. Over a perod of time balance sheet will be affected. Thanks to capitalisation benefit.

Any comments on that.

Subhankar said...

Good points, Madhu.

The Tatas seem to have suddenly woken up and went on a global acquisition binge. Wonder if Alan Rosling (till recently a board member of Tata Sons) had anything to do with that.

Yes, there are short term hiccups and large debt. But the Tatas have the sincerity of purpose and financial muscle to come out of such tests with flying colours.

These are opportunities to buy good companies at fair prices.

ssharma said...

Thank you subhankarji for considering my request and wriring about TATA CHEMICALS which manufactures DESH KA NAMAK, TATA SALT.
its available for 267 since their are few minor problemsbut for these problems it would have been at 440. Watch this space after 2 years.
ssharma

Subhankar said...

You're welcome, Sujoy.

I enjoy writing about 'boring' stalwart stocks that generate real cash from their operations. The strength of the core business model ensures that the company will recover from any temporary glitches.

Avinash Upadhyay said...

I am a regular reader of your blog because you pick up such companies which are boring enough to attract my interest. Also, your blog seems to be a much more sincere and knowledgeable effort than most that I chanced to read.

A sufficiently boring stock is 3i infotech. Although it comes each quarter with good profits and has some really wonderful projects, the price just keeps to a straight line. Do you think it will interest you enough to analyze?
Avinash

Subhankar said...

Appreciate your comments, Avinash.

3i Infotech has proven that a good company need not have an outperforming stock. Their strategy of growth through acquisitions has landed them with a large debt burden. The market has put both thumbs down to that.

Thanks for the suggestion. I'll write about it next week.