Stocks Recommendations

SENSEX (27866) BSE Sensex opened positive but witnessed immense selling pressure as the bears dragged the index below its major support of 28000 levels and closed the day with the loss of around 235 points. It has been making lower lows and witnessing selling pressure at every minor bounce back move from last three trading sessions. Now, it needs to hold above 27850 levels then only a bounce back move may be seen towards psychological 28000 levels. However, if it fails to hold 27800 levels then bears may drag the index towards 27500 levels.

Stocks in Focus

Mindtree closed ~2% higher in weak trade yesterday, supported by 1.5x its 2-week average volume. Mindtree’s growth is expected to be led by digital which currently contributes ~34% to the revenue even as near-term margin headwinds persist. 

We are positive on Mindtree based on 

• Growth in SAP HANA consulting and CPG solutions with acquisition of BlueFin and Relation Inc
• Strong momentum in digital (increasing deal size and US$100mn deal-funnel)
• Robust contract bookings (deal TCV 30% higher in 1Q than FY15 quarterly-average)
• Europe recovery expectation from 2HFY16E  
• Continued strength in top-account mining.

We expect Mindtree’s US$revenue/EPS to grow at 17%/18% CAGR over FY15-17E, respectively. We have a BUY on the stock with target of Rs.1,600; at CMP it trades at 15.5x its FY17E earnings.

Technical Recommendations

M&M Finance found good support around 61.8% Fibonacci Retracement level of recent up move (which begun from Rs.232 and ended at Rs.291) and after a gradual advance, yesterday the stock managed to close above its 20-days EMA for the first time since, 21st July, 2015. 

We believe, the stock will recover prior loss irrespective of market sentiment and visit at least one month high-Rs.286 before witnessing any major decline, as 

• Rise in daily Stochastic (5,3) from its oversold zone
• Upturn in RSI (14,9) from its bull market support (i.e.40- 33 levels) and 
• Positive cross-over in MACD (12,26,9) are signaling that downside is limited for the stock and current set-up is in favor of probable price rise.

Thus, for today’s trade, long position can be initiated only in Rs.260-256 range for target of Rs.285 with a closing based stop loss of Rs.250.