Medium term view – Divis Laboratories Limited : IDBI Capital
Divis Laboratories Limited, an Active Pharma Ingredients (APIs) & Intermediates company, was incorporated in the year 1990. Divis prime fundamental is Research & Development and focuses on developing new processes for the production of Active Pharma Ingredients (APIs) & Intermediates. The company provides complete turnkey solutions to the domestic Indian pharmaceutical industry.
The overall trend in this pharma counter has been on the upward track ever since it got listed during March 03. After a phenomenal rally to the highs of 965 by Jan 2008, prices topped out owing to profit booking action and slipped into a heavy declining mode. Though the prices had gone thru prior dips during the rally, this correction was far more severe, as the number of sellers had overtaken the number of buyers by a large margin and dips were no longer looking attractive. The series of lower tops and bottoms retraced about 61.8% of the rally from June 06 lows. Finding support there, prices moved back up on renewed buying from March 09 onwards. Looking at this rally on the chart below we can see that prices were consistently moving upward, finding support on an ascending trendline (green line). During this rally we find prices had been facing resistance around the 50% retracement of the falling leg Jan 08– March 09 at 674 levels. In early Jan 10 prices attempted a breakout from the same but not finding enough buying was pulled back below the resistance and slipped into a fresh decline. There was also the presence of a descending Gann line (orange line). The dip from there held support at the rising trendline and once again rallied in Feb 10. A steady pick up from the low of 562 led prices to attempt breakout from the above mentioned resistances but the pronounced higher shadows
indicate that prices were struggling to hold on due to the presence of sellers near the resistance. Currently prices are trading above the retracement at 674 but below the Gann line resistance. Last week prices once again poked past the Gann line region but ended the week just below it. The consistent higher bottom formation indicates that the trend continues to look bullish but is in need of some good upside push above the resistances. RSI too is comfortably rising and seems to be showing signs of witnessing a possible shift in range, to a bullish one above 60. This can happen only with a good breakout in prices. Even incase of dips, as the overall trend is bullish, it can be looked to buy into.
One can therefore consider buying this pharma counter at current levels or dips towards 670-65 / 645 for target of 786-88 where a strong valuation region lies (black line) and above that to 890-94. We shall review for higher targets, once these are met.
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Category: Medium Term
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