Tata Motors stock has pulled back from Rs. 320 to Rs. 260 i.e. correction of 19% from highs. Is the current decline a buying opportunity? Technically – the answer is YES. Leadership stocks are always strong buys on pullbacks.
Tata Motors at 100 dma
When a leadership stock is at moving averages: it offers the best buying opportunity.
As you can see in the chart above: Tata Motors was one of the best performing stock in Jan-March rally in which it not only recovered from lows but also broke out and made fresh life time highs above 260-270. It was a pretty much one way ride. BUT now, because of market pullback and weaker-than-expected sales volume in its luxury car division, Jaguar Land Rover (JLR), for April – the stock has corrected sharply and pulled back to 100 dma/ 260. This is the level – stock has held since early feb.
Institutions continue to have bullish bias
Here’s the good news: CLSA and Nomura both have come out with strong buy recommendation on the stock post correction.
We believe that there are seasonal factors at play here and don’t see any evidence of a broad-based demand weakness. 4Q results on May 29 are likely to be strong and we expect a consol net profit of Rs42.7bn – up 70% YoY.
JLR’s performance will continue to drive Tata Motors’ stock as it contributes 67% of revenue and 90% of profit. The company is expected to post an EPS of Rs. 44.4 in FY13 and it means stock’s valuation is extremely attractive at cmp. The valuation support and strong growth will act as support and limit the downside.
At CMP, there is very limited stock specific risk and major risk comes from overall market. If 100 dma breaks – then technically stock can slide to 200 dma i.e. 220. But will that happen – well…we will wait and watch. At CMP, the stock looks attractive and traders can put a tight stop of 2.5% from current levels. Investors can hold on to the stock even if it breaks down and re evaluate fundamentals/technicals at 200 dma
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers.