Tech View: Is Maruti Suzuki a good contrarian bet at the current levels?

Enough has been written and said by how Maruti Suzuki's plan to buy cars from the upcoming Gujarat plant by the parent Suzuki's wholly owned subsidiary. Institutional investors are worried that the move will erode shareholder wealth and convert the company from a manufacturing company to a distribution company.

Retail investors could do little but to exit the stock while time warrants or hope that big sharks read mutual funds and state insurer (LIC) who collectively own 13% of the company, to drum up war clouds against the management for taking the decision.  

Institutional investors in the company are worried that the move will lead to the stock being de-rated since distribution companies trade at a lower PE multiple (price-to-earning ) than manufacturing compnanies, which could significantly erode shareholder wealth.

Despite analysts’ warning the stock has returned 3.4% since the news was first announced on 28 January, 2013. Market experts say it is on back of upgrades by foreign brokerages. The stock didn’t beat the benchmark Sensex's 5.4% returns in the same time frame but there are voices who advice caution lest the trend reverses. The company’s management has said that the move will free-up cash which will be used in other areas such as research and development.

While the jury is still out there whether the latest move will create a samurai or a Kamikaze out of Maruti, for the sake of simplicity let’s just focus on the price movement and where is it headed now.

 Is there a trading opportunity here to bag profits while they last?

"Maruti had a rather tumultous 2014, as the end of January saw the stock test a fresh lifetime high, post which a correction unfolded. Continuos news flows have kept the  stock price in check while respite has emerged near the  200 Day EMA for the stock. While a bounce from thereof  was staged from the end of Feb to the early March 2014  days, a breakout above its 50 day EMA has found enemy  near 1818 levels, a Double top on daily charts. A quick correction that unfolded from the said Double top found  respite again near its 50 day EMA and a bounce as evident  for today's session can be witnessed. As evident the stock has turned extremely volatile and recent news flows are aiding the erratic moves on the stock. High risk traders to watch 1650 as support and 1820 as resistance on the stock counter, and trades to be executed with a cautious note." says Ranak Merchant of Sushil Finance.

Mohit Gaba, Independent technical analyst takes a look at the stock charts and predicts whether the stock will give more returns or do a kamikaze from current levels.

Also, Gaba spoke on markets in general and other top stocks in the limelight now. Below is the full transcript:  

Some analysts are of the view that Nifty could touch 7,000 by election results; your views on this?

The Nifty has a positive bias on the larger time frame, We could see a correction on the Nifty as we have see a 10% run up on the index from recent lows. As long as we trade above 6400 we should look to buy on dips with a stop loss.

What are your picks from the mid-cap space?

One could look at Tata Global with a stop loss around 144 for targets of 153. Tata Power SL 81 TGT 86

What is your take on BSE Metal index? What stocks could one short form that space

This space has seen a bit of a down move, currently there is no clear short as the risk to reward is not favourable, hence wait on the sidelines

What is your take on Maruti Suzuki stock. Is the right time to exit?

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