Thursday, August 23, 2007

5 Reasons to be bearish on these Stocks (short term perspective)

In this article let us analyze some of the stocks which are technically bearish for the short term. Some of these are fundamentally good stocks but the crowd seems to have lost buying interest at least for the time being.

Broadcast Initiatives Limited:

This company has been promoted by Sri Adhikari Brothers Television Network Limited, which is traded at both BSE and NSE. Broadcast Initiatives had changed names twice; it was originally incorporated as SAB Samachaar Limited in 2004. It was changed to Sri Adhikari Brothers News and Television Network Limited in 2005. The current name is in use since May 2006.

In my earlier article, “How do IPO’s perform in secondary market?” we discussed how the stocks rise or fall after getting listed in the exchanges. Here is another case of a stock that has NOT performed well in the secondary market. The stock had an IPO issue price of Rs.120. On its day of listing, March 7, 2007, it opened at 140 but closed at 70.40. The stock has been terribly bearish in daily charts; On May 29 it closed at 84.10, its highest ever close so far (a good 36 below IPO price). It can be seen from the daily chart displayed above that the stock has closed below its previous low of 55 for two consecutive days. For bullish breakouts volume confirmation is necessary; but for bearish breakouts volume confirmation is not a strict criteria since heavy selling may not immediately follow the breakout.

Kohinoor Foods Limited:

Kohinoor Foods Limited (formerly Satnam Overseas Limited) manufactures basmati rice and ready-to-eat food products like ‘Heat and Eat Curries’, ‘Rice and Curry Combi Meals’ etc. Kohinoor has about 32% share in branded basmati rice market in India. The company’s net profits for the last two financial years are nearly identical at Rs.22 crores.

In the daily chart shown above, the stock has not been able to conclusively break its resistance at 87.70 though it opened higher than this value on a couple of occasions. Now, it has broken its support at 51.50 made on June 14, 2006 yesterday and closed below it. This is quite significant since 51.50 is 2 year low. Any technical rally or a dead cat bounce should be used only to exit the stock.

Lokesh Machines Limited:

This company specializes in machine tools industry. Its products include machining centres (horizontal and vertical), turning centres, special purpose machines (for duplex milling, simplex milling, multi spindle drilling, multi spindle tapping, gun drilling, fine boring, broaching etc.), transfer line machines, machines for automobile components etc. The company’s net profits for the last two financial years were Rs.8.23 crores (2005 – 06) and Rs.10.81 crores (2006 – 07).

The stock was issued for an IPO price of Rs.140 in May 2006. It got listed with a premium of 71.65 on May 5, 2006. It’s highest close was 268.40 on May 11, 2006. But since then, it has been on a downtrend.

It may be noticed from the above chart that the stock did manage to close above its IPO price on many occasions; but it had also nearly tested its support at 99.70 once. Now it has broken this support for 4 days in a row. The stock may be avoided for the short term from a technical perspective.

Rsystems International Limited:

R Systems is a software product development and BPO services partner for more than thirty software product and service companies. RSystems develops products and provides services that are used to:

  • Manage over USD 200 billion in loan portfolios
  • Enable leading Media and Telecom companies to deliver futuristic triple IP services
  • Make leading Japanese consumer electronic companies to automate over USD100 billion in purchases
  • Help 55000 employees of a top Fortune 500 company in 39 countries to collaborate

The company declared a net profit of Rs.8.10 crores for the period between January 1 and June 30, 2007.

This stock’s IPO issue price was 250. It got listed on April 26, 2006 with a premium of 35. It did touch a high of 350 on the same day; but closed slightly below its IPO price at 249.65. It has NEVER managed to close above its IPO price even once in the last 16 months. Since August 9, 2007 it has been closing well below its support at 108.15. This is yet another example of an IPO stock that has lost more than half its value in this wonderful bull market.

Welspun India Limited:

The Welspun group has diversified business in textiles, saw pipes, billet TMT bars, retail etc. Welspun India Limited is a leading manufacturer of terry towels and bed linen. Its towel product range includes ultra cot (soft cotton towels), solids (bordered towels), beach towels, kitchen towels, embroidered towels etc. The company’s net profits in 2005 -06 was Rs.41.55 crores; in 2006 – 07 it increased to Rs.52.10 crores.

But the marketmen think differently. The stock had fallen from a high of 133 in April 2006 to a low of 60 in June 2006. It slightly recovered and touched a high of 98 in November 2006. But, it has not been able to move up further. It has now closed below 60 for four days in a row. The stock is bearish for the short term. The medium term trend too is bearish, as none of the technical indicators/chart patterns/candlestick patterns favour a reversal.