15 Aug 2021 | Trendline Investor | Newsletter 13

Nifty at all-time high but Portfolio down?

Disclaimer: I am not a SEBI registered advisor and this newsletter is for educational purposes only

Hello <<First Name>>,

Wishing you a happy 75th Independence day! 🇮🇳 On this beautiful day, I’d like to remind you again of the massive potential our country has considering the demographics and if you are a long term investor then you can definitely reap major gains. The key is to find those opportunities and manage your risk!

Now, let’s jump into the 13th edition of the Weekly Trendline Investor Newsletter, where you will find the Market outlook, Sector to watch out for, Top 4 stock picks and an explanation of why your psychology is the most important attribute to sustain yourself in markets. Hope you enjoy!

Non-stop rally in Nifty 💪:

  • Nifty has been moving strongly for the last 2 weeks.

  • However, the mid caps and small caps have taken a pause with only a handful of stocks rallying in this space. The momentum off-late has been primarily in the large cap space.

  • This behaviour is not new to markets, and often happens when the money shifts from one segment to another.

  • Currently, this shift of money from small cap/mid caps to large caps is what’s driving stocks such as L&T, Bharti Airtel, TCS, HCL Tech etc.- which are in turn taking Nifty higher.

  • Having said that, there is no need to worry as this is just a routine correction/pause in the mid cap and small cap stocks.

  • Markets never go one way up- volatility is an inherent feature of the market and if you are not used to it, it’s high time to get accustomed to it.

  • Nonetheless, to provide a context of where Nifty is currently at, take a look at the below Nifty long term chart.

  • Remember the breakout from the parallel channel occurred only in Dec’20 and we are just 8 months into this rally post the breakout and I strongly believe we have a long way to go before the markets make a U-turn and turn bearish.

  • If you were not invested in the last few months or you pulled your money out expecting another crash, you have been wrong all along.

  • Remember, markets will always do the unexpected. Stay invested in this once in a life-time bull run!

Sector to watch out for 🏦:

  • The sector to watch out for in the coming weeks is the PSU bank Index.

  • The index is forming an inverted head and shoulders pattern on the long term charts and on the short term charts the index reversed from a trendline support and has been going sideways for the last 2 months.

  • The strongest stock from this sector is SBI bank and I see targets of around 600 here in the next few years..

Market Breadth 👎:

  • The broader market seems to be losing strength week on week and the market breadth indicator has dipped for the 4th straight week.

  • As I mentioned in the last newsletter, this is a clear indication of the weakness in the broader market.

  • However, there are still 700+ stocks in strong momentum and if you have the ability to pick stocks which are hitting fresh 52-week highs, you can still make money in mid cap and small cap stocks.

  • So, keep your focus on stocks that are strong and stay invested! You never know when this market will reverse.

In case you’d like to check out my new ‘Trade with Trendline Investor’ series where I trade with a capital of 1 lakh and share the trades that I take, with the objective of sharing my approach and key risk management techniques with you, you can find it on my Youtube channel.

Top 4 Stock picks for the week

Stock Performance:

For the 48 stocks recommended in the past editions, the below chart highlights the overall stock performance. 10 stock ideas were closed because the stop loss was hit.

  • Best performers 🏆:

    • ICIL is up 50%

    • Kitex Garments is up 44%

    • JK Lakshmi Cement is up 37%

    • Sharda Motors is up 26%

  • Worst Performer ⚠️:

    • Rossell India is down 8%

For past recommendations, stock performance and trailing stop loss updates, please refer to this sheet. You will also find some interesting FAQs that will guide you how to allocate your money to the stocks recommended.

1. Heranba Industries Ltd

  • Heranba Industries is an agrochemical company and manufactures Synthetic Pyrethroids and its intermediates that are used in insecticides, fungicides and herbicides.

  • The company has been posting excellent numbers in the last few quarters and posted an increase of 28% in Sales in FY’21 with improved operating margins at 18% from 14% in FY’20. This resulted in a 50% increase in net profits compared to FY’21.

  • The stock was recently listed in Mar’21 and has been consolidating for the last few months.

  • The stock has picked up momentum off-late and has broken out from an ascending triangle pattern with an increase in volumes and is looking good to head higher from here towards levels of 1000 in the next few months and 1250 in a year or so.

2. NMDC Ltd

  • NMDC is engaged in exploration and production of Iron Ore along with Diamond, production and sale of Sponge Iron and generation and sale of Wind Power.

  • From the commodity space, this is one of the most undervalued companies and is just trading at 6 P/E. The last couple of quarters have been phenomenal for the company and the operating margins are at a 6 year high driven by rising commodity prices.

  • The stock has been in a very long term downtrend since 2008 and recently broke out in Apr'21 with good volumes and is just consolidating for the last 3 months.

  • This recent cool-off means the stock is prepping to head higher from here towards levels of 300 in the next few years.

3. Redington India Ltd

  • Redington is a leading supply chain solution provider in the field of technology and communications in India as well as across the globe.

  • Being the second largest distributor of IT products in India, it is a premier distributor of products for 200+ global technology vendors.

  • The company has increased its Sales and profits steadily over the years and posted a record 56,956 crs in Sales and 756 crs in Net profits in FY'21. The borrowings of the company have significantly dropped from 2775 crs to 622 crs in FY’21.

  • Technically, the stock was trending in a long term parallel channel and recently broke out and is trading at all-time highs now.

  • One can buy the stock at current price for targets of 450 in the next one year.

4. Stove Kraft Ltd

  • Stove Kraft manufactures a wide range of kitchen solutions under Pigeon (value), Gilma (semi-premium) brands along with cookware, cooking appliances and home solutions.

  • The company was a loss making company until FY’18 and had a strong turn around in the last few years. It posted a record 859 crs in Sales and 81 crs in profits in FY'21. The operating margins improved from 5% in FY’20 to 13% in FY'21.

  • Technically, the stock broke out from a strong IPO base in May’21 and has been moving up strongly.

  • The stock has been consolidating for the last 1.5 months and looks good to head higher towards levels of 1100 in the next one year or so.

  • Given the company is in the consumer durables space, this can go a long way ahead.

Trend Following Series- Psychology to sustain yourself in Markets 🧠

Given the recent volatility in the small cap and mid cap stocks and the fear that the markets are going to crash, I thought of emphasising how important psychology is for an investor/ trader, in this week’s blogpost. You can’t keep dancing to the moves of the market, rather, you need to focus on your plan and stick to it- no matter what. This is the most important step to becoming a successful investor/ trader.

I have also provided two book suggestions that have helped me greatly improve my own psychology and approach towards the markets. I’m sure they will help you too!

Until next week, stay safe and keep learning…

Your Trendline Investor!

For any queries, please contact me on twitter @dmdsplyinvestor using #Asktrendlineinvestor.

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