Medium term view – Finolex Inds Ltd. : IDBI Capital

Finolex Industries Ltd is one of the leading petrochemical companies in India, mainly engaged in the business of manufacturing and marketing PVC Resin and PVC pipes and fittings. The company offers a wide range of PVC pipes and fittings for diverse applications in agriculture, housing, telecom, industry, ..etc. It also manufactures specialty pipes and fittings, namely soil, waste and rain water pipes and fittings for construction industry.

This counter has been trading on the bourses since a really long time. On the technical charts we find that prices after an excellent primary rally from 1999-2003, topped out at highs of 84. We can see that following the dip from the highs, prices could never really regain the prior strong bullish momentum. Consistent profit booking at every rise attempted had made the trend quite choppy. This range bound action lasted for almost three years. A razor sharp rise in Dec 07 led prices to breakout sharply from this range but failed to produce a follow thru in the following month. Inability to keep up the fresh bullish momentum led prices to plunge into a fresh fall. Retracing about 80% of the prior rally, prices bottomed out at a low of 25 during March 09 and from there have seen an excellent pullback.

Looking at this move on the weekly charts below we find that prices have been scaling up well, holding support 40-period EMA. Prices have been consistently moving up forming a sequence of higher tops and bottoms and forming fractal . The primay trigger for a sustained uptrend is the strong fundamental background. The consistency in the fundamental growth has had a sustained positive impact on the technical front as well. The month of April 10 saw the company announcing a whooping 80.75% rise in net profit in the March 10 quarter. This was followed by the announcement of a dividend. After some sharp moves triggered by this favorable news, prices topped out at a high of 84 during early May 10, also because of the presence of Fib extension around 81 levels. After about a month of correction, prices managed to bottom out atop a cluster of supports around 67-65 and after some sideways action on it finally managed to bounce back sharply last session. This fresh turnaround was accompanied by gigantic volumes, indicating some aggressive buying. Momentum has received a fresh boost. RSI on the weekly time frame has made a turnaround from the support at 60. The readings are strong on all time frames. With the prices all set to scale further high, one can consider buying now for rise towards 101-03 / 125-27. We shall revisit for higher targets after these two are successfully met.

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Tags: Finolex, Free Share Tips, IDBI Capital

Category: Medium Term