Friday, March 3, 2017

Stock Chart Pattern: Akzo Nobel (ICI) India – An Update

The Indian paints industry is dominated by Asian Paints - with more than 50% market share. Akzo Nobel (formerly ICI) India is an 'also ran' with 11% market share - behind Berger Paints (19%) and Kansai Nerolac (15%).

So, what is the investment rationale for this company? It is part of the largest paints and coatings company in the world, and has been gradually rationalising its India operations and slowly gaining market share.

Valuation looks more attractive than its larger competitors. Through organic (greenfield and brownfield) as well as inorganic expansions, the company has been growing at a 20% CAGR over the past 5 years (against an industry average of 12%).

The daily bar chart pattern of Akzo Nobel India had completed a large 'double bottom' reversal pattern around 1200 in Feb '16, and rallied strongly  to touch a lifetime high of 1740 on Aug 31 '16.

Note that all four daily technical indicators showed negative divergences (marked by blue arrows) by touching lower tops while the stock touched its lifetime high.

Over the next two months, a 'triple top' reversal pattern was formed. That initiated a correction which was exacerbated be Modi's demonetisation announcement in Nov '16.

The stock price dropped sharply below its three EMAs into bear territory, and touched a low of 1375 on Nov 23 '16. After some sideways consolidation, it dropped even lower to 1328 on Jan 16 '17.

Note that three of the technical indicators - MACD, ROC, RSI - showed positive divergences (marked by blue arrows) by touching higher bottoms while the stock price dropped lower.

That was a trigger for the stock to start its recovery. Resistance from the long-term 'support-resistance' level of 1460 has been overcome. The 'golden cross' of the 50 day EMA above the 200 day EMA will technically confirm a return to a bull market.

The stock may consolidate or correct a little before resuming its up move. The company has a history of strong cash flows and good dividend payments. Patient investors can think about adding it to their portfolios.

1 comment:

Subhankar said...

Akzo Nobel rejects $22 billion PPG bid, looks to spin off chemicals