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Wednesday, December 7, 2011

Chart Patterns of Housing Finance Companies (an update)

A few days after the Sensex and Nifty peaked in Nov ‘10, news of the housing finance scam dampened investor sentiments further. I had written a post on the chart patterns of housing finance companies at that time - all of them were correcting from their respective peaks.

Multiple interest rate increases since then have taken a toll on interest-rate sensitive industries, including housing finance companies. However, there are always one or two stocks that buck the trend. Those are the ones to put on your buy list. Let us look at the current charts in alphabetical order:

Can Fin Homes

CanFinHomes_Dec0711

After touching an intra-day high of 172 in Aug ‘10, the stock has been in a long down trend – halving in value when it touched an intra-day low of 86.55 in Feb ‘11. It has been consolidating within a bearish descending triangle pattern. The likely break below the support level of 90 can push the stock deeper into a bear market. On the upside, the 200 day EMA and the blue down trend line will provide strong resistances. Avoid.

Dewan Housing Finance

DewanHsgFin_Dec0711

The stock peaked at 347 in Nov ‘11 before starting a prolonged correction within a downward sloping channel. So far, the stock has corrected 47% from its peak. Today’s high volume spurt was on news of its fund-raising plans. The stock is in a bear market, and such news driven spurts are good selling opportunities. Avoid.

GIC Housing Finance

GICHsgFin_Dec0711

The stock has been trading within a downward sloping channel, and is in a bear market. The drop from its Nov ‘10 high of 161 to its recent low of 74 has corrected 54% from its top – making it the worst performer among the housing finance stocks. Avoid.

GRUH Finance

GRUHFIn_Dec0711

This HDFC subsidiary has been a star performer – outperforming even its better known parent. After making a double-bottom (311 in Feb ‘11 and 310 in Mar ‘11) pattern, the stock embarked on a strong bull rally that peaked at 629 in Nov ‘11 – a 100% gain in 8 months. This was one of the two top picks in my previous post, and has certainly lived up to expectations. Add on dips.

HDFC

HDFC_Dec0711

The stock was the other top pick in my previous post. It has been a favourite of the FIIs. That perhaps led to its relative underperformance, even though the fundamentals remain strong. The FIIs have been net sellers of Indian equity in 2011, and stocks like Infosys and HDFC have borne the brunt of their selling. The stock has been moving sideways – oscillating around its 200 day EMA. Hold.

LIC Housing Finance

LICHsgFin_Dec0711

This scam-tainted stock had a sharp fall, followed by a 5:1 stock split (marked by light blue bell) that exacerbated the fall as a large number of stocks hit demat accounts. The company had no alternative but to make top-level changes, which led to a decent recovery. The stock has been trading within a rectangular consolidation pattern for the past 8 months. Hold.

Bottomline? The stock chart patterns of housing finance companies clearly show that high interest rates have affected performance – with the sole exception of GRUH Finance. Its business concentration in the state of Gujarat – one of the best administered states in India – has helped its cause.

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