Blog posts of '2024' 'February'

As the interest of investors in increasing towards Stock Markets, people are constantly seeking tools and indicators to help them make informed decisions. One such tool that has gained significant popularity among traders is the Relative Strength Index (RSI). RSI is a momentum oscillator that measures the speed and change of price movements. In this blog, we'll delve into what the RSI indicator is, how it can be used, its interpretation, and its limitations.

So, lets begin.

What is the RSI Indicator?

The Relative Strength Index (RSI) is a technical indicator used in financial analysis to assess the strength or weakness of a financial instrument's price movements. It is a from 0 to 100, and is calculated using the formula:

RSI = 100 − (100/1+RS)

Where RS (Relative Strength) is the average gain divided by the average loss over a specified period. Typically, the RSI is calculated over a 14-day period, but this can be adjusted depending on the trader's preference and the timeframe being analysed.

The good news here is, you don’t need to calculate it, it is available as an indicator (generally appears plotted beneath the graph of an asset’s price) on most of the broker’s app and market analysis websites.

How Can It Be Used?

1. Overbought and Oversold Conditions:

One of the primary uses of the RSI is to identify overbought and oversold conditions in the market. When the RSI crosses above 70, it is often interpreted as the asset being overbought, suggesting a potential reversal or pullback in price. Conversely, when the RSI falls below 30, it is considered oversold, indicating a possible price rebound.

2. Divergence Analysis:

Another way traders use the RSI is by analysing divergences between the RSI and the price movement of the asset. Bullish divergence occurs when the price makes a new low, but the RSI does not, suggesting a potential reversal to the upside. Conversely, bearish divergence occurs when the price makes a new high, but the RSI does not, indicating a potential reversal to the downside.

3. Confirmation of Trends:

The RSI can also be used to confirm the strength of a trend. In an uptrend, the RSI tends to stay above 50 and frequently finds support around the 40-50 level during pullbacks. In a downtrend, the RSI typically remains below 50 and often finds resistance around the 50-60 level during rallies.

Interpretation of RSI

Interpreting the RSI involves understanding its readings in relation to the market conditions and the specific timeframe being analysed. Here's a brief overview:

• RSI above 70: Overbought condition, potential sell signal.
• RSI below 30: Oversold condition, potential buy signal.
• Bullish divergence: Potential reversal to the upside.
• Bearish divergence: Potential reversal to the downside.
• RSI trends above 50 in uptrends and below 50 in downtrends.

Limitations of the RSI Indicator

While the RSI can be a valuable tool for traders, it is essential to acknowledge its limitations:

1. Lagging Indicator:

The RSI is a lagging indicator, meaning it relies on past price data. As a result, it may not always provide timely signals, especially in fast-moving markets.

2. Not Suitable for All Market Conditions:

The RSI works best in trending markets but may produce unreliable signals in sideways or ranging markets.

3. Subjectivity:

Interpretation of the RSI readings can be subjective, and traders may have different criteria for determining overbought and oversold conditions.

In conclusion, while the RSI indicator can be a powerful tool for traders to assess market momentum and identify potential trading opportunities, it is crucial to use it in conjunction with other technical analysis tools and consider its limitations. Like any tool in trading, the RSI is most effective when used as part of a comprehensive trading strategy and combined with sound risk management principles.

The relative strength index (RSI) is a momentum indicator used in technical analysis. It measures the speed and magnitude of a security's recent price changes to evaluate overvalued or undervalued conditions in the price of that security.

If you love to understand the technical analysis that goes behind understanding the time of entry and exit, make sure to check out my course on Technical Analysis. Until next time!

Stock name: National Aluminium Co. Ltd.

Pattern: Rounding bottom pattern

Time frame: Monthly

Observation:

Over the prolonged period spanning from May 2008 to January 2024, the stock exhibited a rounding bottom pattern on its monthly chart. In January 2024, it exceeded its levels from May 2008, signalling a breakout from the rounding bottom with notable trading volume. Subsequent to the breakout, the stock is presently following an upward path. Technical analysis suggests that maintaining the breakout level may lead to a sustained upward trend in the stock.

You may add this to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

Stock name: Indiabulls Housing Finance Ltd.

Pattern: Cup and handle pattern and retest

Time frame: Weekly

Observation:

Since 2018, the stock has experienced a downward trend. Between February 2022 and November 2023, a cup and handle pattern emerged on its weekly chart. Towards the close of November 2023, the stock successfully broke out of this pattern. Initially, it ascended, but it is presently undergoing a retest of the breakout level. Following this retest, the stock's RSI levels are currently at favourable levels. Technical analysis suggests that a successful rebound from the retest may propel the stock in an upward direction.

You may add this to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

News for the day:

• Cipla has partnered with CSIR-CDRI to develop a formulation for treating fungal keratitis, a severe eye infection. The collaboration aims to combine Cipla's pharmaceutical expertise with CSIR-CDRI's research capabilities to create an effective solution for this condition.
  
  
• Multiple payment banks are currently under investigation for suspected involvement in money laundering. Regulatory authorities are scrutinizing these institutions to ensure compliance with anti-money laundering regulations and to address concerns about potential misuse for illicit financial activities. The investigation reflects efforts to enhance oversight and mitigate money laundering risks in the banking sector.
  
  
• Reliance Industries is reportedly in discussions to acquire a 30% stake in Tata Play from Disney. The potential deal aims to bolster Reliance's television distribution and JioCinema services. The move suggests a strategic expansion in the media and entertainment industry, with Reliance seeking to strengthen its presence in the rapidly evolving market. If finalized, this acquisition could significantly impact the dynamics of television distribution and content streaming platforms in India.

Stock name: Indus Towers Ltd.

Pattern: Head and shoulders pattern and retest

Time frame: Daily

Observation:

Since April 2023, the stock has experienced an upward trend. Between January and February 2024, a head and shoulder pattern emerged on its daily chart. The pattern witnessed a breakout on February 12, 2024, leading to an initial downward movement. Presently, the stock is undergoing a retest of the breakout levels. The Relative Strength Index (RSI) is currently below 50. According to technical analysis, the stock may see further downward movement if it regains the breakout momentum.

You may add this to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

Stock name: MMTC Ltd.

Pattern: Rounding bottom pattern

Time frame: Monthly

Observation:

Since its listing in 2010, the stock underwent a substantial downward trend. From July 2014 to January 2024, it stabilized and formed a rounding bottom pattern. In January 2024, the stock surpassed its July 2014 levels, marking a breakout from the rounding bottom pattern with robust trading volume. Following the breakout, the stock is currently on an upward trajectory. According to technical analysis, sustaining the breakout level may lead to a continued upward trend for the stock.

You may add this to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

News for the day:

• Hyundai is planning an initial public offering (IPO) in India as part of its expansion strategy and aims for a higher valuation. The South Korean automaker intends to raise capital through this IPO and further strengthen its presence in the Indian market.
  
  
• The Insurance Regulatory and Development Authority of India (IRDAI) is proposing key reforms in the insurance sector. They suggest extending the free-look period from 15 to 30 days, offering policyholders a longer duration for policy review. Additionally, IRDAI aims to establish an online marketplace called "Bima Sugam" to enhance digital accessibility within the insurance industry. These initiatives underscore IRDAI's commitment to consumer protection and the promotion of digital advancements in insurance.
  
  
• Indian authorities, including the Enforcement Directorate (ED), are reportedly issuing notices and requests to Paytm for customer information. The move is part of ongoing efforts to scrutinize financial transactions and ensure compliance with regulations. The ED's actions indicate a focus on obtaining crucial data from Paytm to aid in investigations and maintain financial transparency.

Stock name: Data Patterns (India) Ltd.

Pattern: Support breakout

Time frame: Daily

Observation:

The stock has seen a sharp decline in September 2023. Later, the stock consolidated and maintained a parallel channel from October 2023 to February 2024. However, on February 13, 2024, the stock broke below the channel support, backed by average trading volume and a recent bearish signal from the MACD indicator. Additionally, the RSI levels of the stock are at a low point. According to technical analysis, if the current downward momentum persists, the stock may see further decline.

You may add this to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

Stock name: JSW Energy Ltd.

Pattern: Cup and handle pattern

Time frame: Weekly

Observation:

The stock exhibited substantial upward movement in 2021, but from October 2021 to January 2024, it underwent consolidation, forming a cup and handle pattern on the weekly chart. January 2024 saw a breakout supported by significant trading volume and a bullish MACD signal. Post-breakout, the stock continued its upward trend. The RSI levels of the stock is also in a good position. Technical analysis indicates that if the current momentum is maintained, the stock may experience further upward movement.

You may add this to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

News for the day:

• The Indian Ministry of Defence has finalized a significant deal worth Rs 2,269 crore with Bharat Electronics Limited (BEL). The contract aims to enhance the country's defence capabilities and involves the procurement of cutting-edge defence equipment and systems from BEL. This move reflects the government's commitment to strengthening the defence infrastructure and supporting indigenous defence manufacturing. The agreement is expected to contribute to India's self-reliance in defence technology and bolster its strategic preparedness.
  
  
• Tata Motors has partnered with the Leadership Group for Industry Transition (LeadIT) to accelerate the transition to net-zero emissions, leveraging global best practices and influencing policy-making. The collaboration aligns with Tata Motors' commitment to achieving net-zero emissions in its Passenger Vehicles by 2040 and Commercial Vehicles by 2045.
  
  
• Sterlite Power has secured funding of Rs 2,400 crore from Rural Electrification Corporation Limited (RECLTD), a government-owned entity, for its Beawar project. This substantial financial support is expected to bolster Sterlite Power's efforts in enhancing power infrastructure and furthering electricity access in the region.

Stock name: Syrma SGS Technology Ltd.

Pattern: Double top pattern and retest

Time frame: Daily

Observation:

Experiencing a swift rise post-April 2023, the stock later underwent consolidation, forming a double top pattern from August 2023 to February 2024. A breakout occurred on February 12, 2024, but the stock is currently undergoing a retest of this breakout. The Relative Strength Index (RSI) is notably low. Technical analysis suggests that if the breakout momentum persists, the stock may continue its downward trajectory.

You may add this to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

Stock name: Dr. Reddy's Laboratories Ltd.

Pattern: Cup and handle pattern

Time frame: Weekly

Observation:

The stock has maintained an upward trajectory overall. Between June 2021 and January 2024, a cup and handle pattern emerged on the weekly chart. Towards the end of January 2024, the stock experienced a breakout from this pattern. This breakout was supported by above-average trading volume and a bullish signal from the MACD indicator. Following the breakout, the stock has been moving upwards. Technical analysis suggests that if the current momentum persists, the stock may continue its upward trend.

You may add this to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

News for the day:

• Reliance Industries is now the first Indian stock to surpass a market cap of Rs 20 lakh crore, showcasing strong performance and strategic success across its diverse businesses in telecommunications, retail, and energy. This achievement underscores its market leadership and robust growth.
  
  
• JSW Steel has entered into a joint venture (JV) with Japan-based JFE Steel, marking a significant collaboration in the steel industry. The JV entails an investment of Rs 5,500 crore. This partnership is aimed at leveraging the strengths of both companies to enhance technological capabilities and expand their presence in the steel market.
  
  
• The Reserve Bank of India (RBI) Governor has confirmed that there are no plans to reconsider the regulatory action taken against Paytm Payments Bank. This statement follows concerns and queries regarding the banking services provider. The RBI had imposed restrictions on Paytm Payments Bank, citing violations and lapses in adhering to regulatory norms. The governor emphasized that the central bank's decision was made after careful consideration, and there is currently no intention to revise or review the order against Paytm Payments Bank.

Stock name: Bajaj Finance Ltd.

Pattern: Head and shoulders pattern

Time frame: Daily

Observation:

Since March 2023, the stock has demonstrated a substantial upward trend. Between May 2023 and January 2024, a head and shoulders pattern materialized on the daily chart. On January 30, 2024, the stock experienced a breakout, accompanied by significant trading volume. Subsequent to the breakout, the stock is undergoing a descent, with notably low RSI levels. Based on technical analysis, the stock may see further downward movement if the current momentum is sustained.

You may add this to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

Stock name: Bajaj Finserv Ltd.

Pattern: Head and shoulders pattern

Time frame: Daily

Observation:

The stock has seen an upward movement since March 2023. Notably, from September 2023 to February 2024, a head and shoulders pattern emerged on the daily chart. The stock experienced a breakout on February 8, 2024, accompanied by a bearish signal on the MACD indicator. Subsequently, it has moved in the downward direction. The RSI of the stock is also at a very low level. As per technical analysis the stock might continue its descent if the existing momentum persists.

You may add this to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

News for the day:

• According to Pirojsha Godrej, the Executive Chairman of Godrej Properties, the company's sale bookings are anticipated to surpass the FY24 guidance, potentially reaching Rs 18,000 crore. This optimistic outlook comes in light of the company's strong performance and increased demand in the real estate sector.
  
  
• The JSW Group is planning substantial investments of nearly $5 billion in electric vehicle (EV) projects in Eastern India. The initiative aims to establish a robust presence in the growing EV sector and aligns with the broader push for sustainable and eco-friendly transportation solutions.
  
  
• The luxury car financing market in India is on the rise as more people with higher disposable incomes are opting for premium vehicles. Financial institutions are responding with specialized financing options to meet the demands of this growing segment, reflecting a broader trend of consumers upgrading to luxury cars.

As we are on our journey of unravelling the corporate actions, the next stop is a share delisting, In the ever-evolving landscape of financial markets, companies occasionally make strategic decisions that significantly impact their structure and the relationship with shareholders. One such move is the delisting of shares from a stock exchange, a process that entails removing a company's shares from public trading. In this blog post, we'll explore the motivations behind a company's decision to delist its shares and the consequential impact on shareholders.

Understanding Share Delisting

Delisting occurs when a company's shares cease to be traded on a public exchange. This can happen for various reasons, and the process usually involves the company buying back its shares from existing shareholders. Delisting can occur voluntarily or involuntarily, and there are different types of delisting. Here are the main types:

1. Voluntary Delisting:

• Company-initiated: A company may choose to delist its shares voluntarily for various reasons. This decision could be driven by a desire to go private, reduce costs associated with being a public company, or undergo strategic restructuring without the scrutiny of public shareholders. In a voluntary delisting, the company typically offers to buy back shares from existing shareholders at a predetermined price.
• Buyout or Merger: Voluntary delisting can also occur when a company is subject to a buyout or merger, and the acquiring company decides not to maintain the target company's listing on the stock exchange. In such cases, shareholders may receive cash, stock, or a combination of both as part of the deal.

2. Involuntary Delisting:

• Regulatory Non-compliance: Stock exchanges have listing requirements, and if a company fails to meet these requirements, the exchange may initiate the process of involuntary delisting. Reasons for non-compliance can include financial distress, accounting irregularities, or failure to meet minimum trading volume or market capitalization thresholds.
• Bankruptcy or Insolvency: If a company faces bankruptcy or insolvency, it may lead to an involuntary delisting. In such cases, the stock exchange may suspend trading of the company's shares and subsequently initiate the delisting process.
• Securities Fraud or Violations: In cases of securities fraud or serious regulatory violations, regulatory bodies may require or mandate the delisting of a company's shares to protect investors.

Let's delve into the primary reasons companies choose to delist their shares.

1. Cost Savings and Regulatory Compliance

Maintaining a listing on a stock exchange involves substantial costs, including listing fees, compliance expenses, and the resources required to meet regulatory obligations. Companies may opt for delisting to reduce these costs, especially if they believe that the benefits of being a public company no longer outweigh the associated expenses.

2. Strategic Restructuring

Delisting can be part of a broader strategic restructuring plan. Companies may choose to go private to implement major operational changes, undertake mergers or acquisitions, or reposition themselves in the market without the constant scrutiny of public shareholders. Going private allows management to focus on long-term goals without the pressure of meeting short-term market expectations.

3. Ownership Consolidation

In some cases, key stakeholders, such as majority shareholders or management, may want to consolidate ownership and take the company private. Delisting enables these stakeholders to gain greater control over the company's decision-making processes and strategic direction.

4. Escape from Market Volatility

Publicly traded companies are subject to market volatility, which can sometimes be unrelated to the company's actual performance. By delisting, companies can shield themselves from short-term market fluctuations and focus on executing their business strategies without being overly influenced by daily stock price movements.

Now that we've explored the reasons behind share delisting, it's crucial to understand how this decision affects shareholders.

1. Share Liquidity and Market Access

For shareholders, the most immediate impact of delisting is the loss of liquidity. Once a company delists its shares, they are no longer traded on the stock exchange, making it challenging for shareholders to buy or sell their shares easily. This lack of market access can be a significant inconvenience for investors who value liquidity and the ability to execute trades swiftly.

2. Valuation Uncertainty

Delisting often introduces uncertainty regarding the valuation of a company's shares. In the absence of a public market, shareholders may find it difficult to determine the fair market value of their holdings. This can lead to increased valuation uncertainty and potentially result in disputes between the company and shareholders over the buyout price.

3. Exit Opportunities

While delisting can present challenges, it also offers exit opportunities for shareholders. When a company decides to go private, it typically offers existing shareholders a buyout at a predetermined price. Shareholders can choose to accept this offer and cash out their holdings, providing them with a liquidity event and an opportunity to realize the value of their investment.

4. Governance Changes

Shareholders often experience changes in governance structures when a company delists. As a private entity, the company may not be subject to the same regulatory and reporting requirements as a public company. Shareholders may lose some of the governance rights and transparency they enjoyed as public investors.

The decision to delist shares is a complex one, influenced by a variety of factors ranging from cost considerations to strategic goals. While delisting offers benefits to companies in terms of cost savings, strategic flexibility, and ownership consolidation, it poses challenges for shareholders, including reduced liquidity, valuation uncertainties, and changes in governance.

As an investor, it's crucial to carefully evaluate the implications of share delisting and weigh the potential benefits against the drawbacks. Companies, on the other hand, must navigate the delicate balance between achieving their strategic objectives and ensuring a fair and transparent process for shareholders. In the ever-shifting landscape of financial markets, understanding the dynamics of share delisting is essential for both companies and shareholders to make informed decisions that align with their respective interests.

To understand more about such interesting concepts along with further interesting examples, check out my course on Basics of Stock Market.

Until next time !!!

Stock name: Bombay Burmah Trading Corporation Ltd.

Pattern: Cup and handle pattern

Time frame: Weekly

Observation:

Between August 2020 and December 2023, the stock developed a cup and handle pattern on its weekly chart. Towards the end of December 2023, a breakout occurred, accompanied by trading volume exceeding the average, and a positive signal from the MACD indicator. Subsequently, the stock demonstrated an upward trajectory. Technical analysis suggests that should the stock sustain its present momentum, it may continue further upward movement.

You may add this to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

Stock name: Varun Beverages Ltd.

Pattern: Flag and pole pattern

Time frame: Weekly

Observation:

The overall trend of the stock has remained in the upward direction. The stock witnessed a swift ascent between October and December 2023. January 2024 saw a stabilization phase, resulting in the formation of a flag and pole pattern on the weekly chart. In February 2024, the stock broke out from this pattern, backed by trading volume above the average. Technical analysis suggests that if the stock sustains its current momentum, further upward movement may be anticipated.

You may add this to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

News for the day:

• Nestle is planning to invest Rs 6,000-6,500 crore to expand its manufacturing operations in India's FMCG sector. The substantial investment aims to boost production capabilities and cater to the growing demand for Nestle products. This move reflects Nestle's commitment to strengthening its position in the Indian consumer goods market.
  
  
• Adani Power has secured the winning bid for Lanco Amarkantak at Rs 4,101 crore. This successful acquisition underscores Adani Power's strategic expansion in the power sector. The deal aligns with the company's efforts to enhance its presence and capacity in the energy industry. Adani Power's bid victory positions it for increased influence and growth within the power segment in India.
  
  
• Max Healthcare has successfully acquired Nagpur-based Alexis Hospital for Rs 412 crore. This strategic acquisition expands Max Healthcare's footprint in the healthcare sector, emphasizing its commitment to growth and service expansion. The move aims to strengthen Max Healthcare's presence in the medical landscape, aligning with its broader strategy of providing quality healthcare services.

Stock name: KPIT Technologies Ltd.

Pattern: Flag and pole pattern

Time frame: Weekly

Observation:

The stock exhibited an overall upward trajectory.  From September to November 2023, it has experienced a rapid ascent. Following this, there was a consolidation phase until January 2024, resulting in the formation of a flag and pole pattern on the weekly chart. Towards the end of January 2024, the stock successfully broke out of this pattern, supported by significant trading volume and a positive MACD indicator signal. According to technical analysis, sustaining this breakout momentum may propel the stock to further upward movement.

You may add this to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

Stock name: Suven Pharmaceuticals Ltd.

Pattern: Head and shoulders pattern and retest

Time frame: Daily

Observation:

Initiating an upward trajectory from October 2022, the stock exhibited stability between November 2023 and January 2024, forming a head and shoulders pattern on its daily chart. A breakout occurred on February 1, 2024, supported by moderate trading volume. Despite a subsequent descent post-breakout, the stock is presently undergoing a retest. Technical analysis suggests that if the stock regains momentum for regression, it could continue its downward movement.

You may add this to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

News for the day:

• Indraprastha Gas Ltd. (IGL) is set to build 19 compressed biogas plants to produce eco-friendly fuel from organic waste. This aligns with IGL's commitment to sustainable energy and contributes to reducing carbon emissions in the gas industry.
  
  
• Tata Steel has partnered with South East Railway to collaboratively develop green infrastructure. This joint initiative underscores a shared commitment to sustainability and environmentally friendly practices within the steel industry. The collaboration aims to integrate green solutions into the sector, promoting eco-friendly advancements and practices.
  
  
• NITI Aayog has proposed incentives and an extension of the Production Linked Incentive (PLI) scheme to promote the adoption of LNG (liquefied natural gas) vehicles in India. The suggestion aims to encourage the use of cleaner fuel alternatives in the automotive sector. The proposal aligns with the government's efforts to boost sustainable transportation and reduce emissions.