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Chemicals look attractive in times of uncertainty; ICICI Direct picks 5 stocks that can rise up to 20%

The size of the Indian chemical industry is estimated to be around $165 billion, representing a market share of 3.4 percent in the global chemical market.

June 01, 2020 / 01:34 PM IST
 
 
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The coronavirus pandemic has hit almost all sectors of the economy and it is widely believed that it will take longer than expected for businesses to come back to normal.

However, there are sectors, such as chemicals, that displayed outperformance.

In a report, brokerage firm ICICI Direct said chemical sectors were one of the sectors which emerged as a winner from its rigorous technical screening across time frames and displayed exemplary outperformance during the ongoing basing process for Nifty.

The size of the Indian chemical industry is estimated to be around $165 billion, representing a market share of 3.4 percent in the global chemical market.

As per ICICI Direct, India’s imports of chemical remained at Rs 3.95 lakh crore in FY19 while exports were at Rs 2.83 lakh crore, representing a trade deficit of Rs 1.11 lakh crore.

The brokerage anticipates India can play a bigger role in the chemical sector in the future.

"Going ahead, increasing environmental concern in China along with other factors compounding the supply-side challenges should result in global players finding a second manufacturing source. We expect this to translate to India’s (being cost-efficient along with government efforts to provide several incentives to foreign players setting up a plant in India) share improving in the global chemical sector," said ICICI Direct.

The brokerage suggests the following 5 stocks from the chemicals sector that an give up to 20 percent return in the next 6 months.

Alkyl Amines Chemicals | LTP: Rs 2,032.45 | Target price: Rs 2,430 | Upside: 20%

The stock has been one of the major outperformers within Chemical space. Currently, the stock has resolved out of long term rising channel on the back of rising volumes (as shown in adjoining chart), indicating acceleration of upward momentum, thereby offering fresh entry opportunity to ride the next leg of the up move.

On the oscillator front, monthly RSI bounced from a bullish support zone of 60 and logged a bullish crossover, indicating strength thereby validating our positive stance.

"We expect the stock to resolve higher towards Rs 2,430 levels as it is Implicated target of rising channel (Rs 1,610 – 810) placed at Rs 2,410," said ICICI Direct.

Astec Lifesciences | LTP: Rs 750.65 | Target price: 845 | Upside: 13%

The stock has logged a resolute breakout from the past seven quarters falling trend line indicating the conclusion of the secondary corrective phase. Thereby offering fresh entry opportunities from a long term perspective.

Structurally, it retraced more than 80 percent of preceding 7 quarters decline (Rs 783 – 305), at Rs 690 in just a single quarter. Falling trend line breakout supported by a potentially faster pace of retracement signifies
structural turnaround.

"We expect the stock to undergo a higher base formation after a sharp up move seen during May 2020. Thus any dip from hereon should be capitalised as an incremental buying opportunity for next leg of the up move towards Rs 845 as it is 123.6 percent external retracement of last decline (Rs 783 – 305), at Rs 895," said ICICI Direct.

Aarti Industries | LTP: Rs 994.60 | Target price: Rs 1,180 | Upside: 19%

The share price is seen retesting the rectangle pattern breakout witnessed during April 2020. In the process, over the last three weeks, it has retraced 80 percent of preceding two weeks sharp up move of Rs 930 –1,192, at Rs 982, working out of overbought conditions.

The slower pace of retracement signifies healthy consolidation. The brokerage believes ongoing higher base formation will help to resolve higher in the coming months.

Structurally, the stock witnessed a faster retracement as the stock entirely retraced past 17 months' consolidation in just a single month, indicating a robust price structure in turn suggesting structural improvement.

"We expect the stock to form a higher base and eventually accelerate upward momentum towards Rs 1,180 levels as it is 123.6 percent external retracement of the last correction (Rs 1,071- 668), placed at Rs 1,166," said ICICI Direct.

Atul | LTP: Rs 4,709.50 | Target price: Rs 5,320 | Upside: 13%

The share price has been in a secular uptrend and confined within the upward sloping channel since March 2015 highlighting sustained demand at elevated levels.

Currently, the stock has been forming a higher base after anchoring the secondary corrective phase at the lower band of the rising channel (on a closing basis).

Thereby offering fresh entry opportunity with favourable risk-reward. The monthly MACD is converging towards its average, indicating a breather that would set the stage for next up move.

"Going ahead, we expect the stock to resume its uptrend and head towards Rs 5,320 as it is near upper band of rising channel coincided with the life highs of Rs 5,445," said the brokerage.

Vinati Organics | LTP: Rs 1,067 | Target price: Rs 1,140 | Upside: 7%

The stock has been in a secular uptrend forming a higher peak and higher in long term chart. It has recently rebounded taking support at the trend line joining lows since CY16, which also confluence with the 50-months EMA currently at Rs 683 thus provides fresh entry opportunity with a favourable risk-reward set up.

Among the oscillators, the monthly stochastic has generated a buy signal moving above its three periods average thus validates the positive bias in the stock.

"We expect the stock to maintain positive bias and head towards Rs 1,140 levels being the trend line resistance joining highs of September 2019 (Rs 1,196) and February 2020 (Rs 1,170) placed at Rs 1,140 levels," said ICICI Direct.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Nishant Kumar
first published: Jun 1, 2020 01:34 pm

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