Thursday, February 14, 2008

Public Sector Enterprises: Long term outlook

During the bull market that started in April 2003, many public sector companies’ stock prices have skyrocketed. Bharat Earth Movers Limited, which was trading around 56 in 2003 had touched 1850 recently. Investors who bought PSE stocks seven or eight years ago have been benefitted tremendously.

Now, is it wise to invest or continue to remain invested in some of the PSE stocks? Let us analyze from a long term perspective.

1 As on 31.12.04

The scrips mentioned above constitute the CNX PSE Index of National Stock Exchange. BHEL and SAIL top the list while MTNL and HPCL stand last as far as appreciation is concerned. Let us now discuss the long term outlook for these stocks.

Bharat Earth Movers:

This stock has formed a ‘double top’ in the monthly chart; it also failed to close above its previous high at 1788 on a monthly basis. Volumes have been subdued during the rally between July 2006 and December 2007. A doji was formed during December 2007 indicating indecision among traders. The double top formation along with negative divergence confirms a long term trend reversal.

Bharat Electronics/ Bharat Petroleum Corporation/Chennai Petroleum Corporation/ Indian Oil Corporation/ Mahanagar Telephone Nigam/ Mangalore Refinery & Petrochemicals/National Thermal Power Corporation/ Neyveli Lignite Corporation/ Oil & Natural Gas Corporation/Shipping Corporation of India/Steel Authority of India:

A bearish engulfing pattern was formed last month. A red candle with lower close at the end of this month will confirm the trend reversal.

Bharat Heavy Electricals:

A doji was formed in the monthly chart during November last year. This was followed by a red candle in December (bearish engulfing pattern) and another red candle in January this year. The 'three outside down' pattern thus formed is the indication of a long term trend reversal. ‘Exit on every rise’ is probably the best approach for the investors.

Container Corporation:

A bearish three outside down pattern was formed during October 2007. The support trendline was also been broken during November 2007. The long term trend has turned bearish.

Engineers India:

It has failed to close above the long term resistance at 1020 on monthly chart. It also broke the support trendline during March 2007. Lot of upper side volatility was observed last month, indicating that smart money has probably exited the stock.

Gas Authority of India:

No reversal signs have appeared in the long term charts. 341 should act as a strong support; if the stock closes below the support and doesn’t bounce back one may think of exiting at higher levels.

Hindustan Machine Tools:

The trendline support was broken during last October. Though the stock had closed above the long term resistance at 111.20 it was followed by a sell off, forming a bearish engulfing pattern. Also, a negative divergence in the long term charts indicates trend reversal.

Hindustan Petroleum Corporation:

The stock broke its resistance at 337.55 during December 2007 with volume. Even during the last month’s sell off the support at 198.20 was not broken. 416 and 543 will be the resistances for the stock when it resumes the uptrend.

National Alumnium Company:

A bearish harami pattern was formed last month. A red candle with lower close below 375 at the end of this month will confirm trend reversal.

Rashtriya Chemicals & Fertilizers:

A bearish dark cloud cover pattern was formed during last month. If the stock closes below 76.85 at the end of this month, it will confirm the trend reversal.

It can be seen from the above discussion that apart from Hindustan Petroleum Corporation other stocks have either turned bearish or in the process of becoming bearish.