AMBANI BROTHERS - A look at the RELIANCE family stocks

The Reliance family shares has been in almost every investor's portfolio in India. Founded by Dhirubhai Ambani whose insight and ambition took the co to greater heights from a price of RS 20 to RS 1600 (post bonus/split adjustment) in January 2008, Today is divided among 2 squabbling brothers who after his demise have exposed each other in the utmost unethical business manner, the consequences of which are being borne heavily by its shareholders.

Mukesh Ambani with a market cap of US$ 55 billion finds his flagship co for the first time now at 3rd position in terms of market value. A steep correction in stock price in spite of having no debt and a high market share in petrochemicals has been, primarily due to the fall in production at K G Basin, investing at least 15% of its investment in none core sectors like $3 billion in mobile spectrum and the management's off late tendency to be indecisive on its expansion plans like announcing a foray into building giant power stations and then doing nothing about it after almost a year. The fear among Institutional and Foreign Investors is that Reliance has the potential to borrow $20 billion for expansion, but these plans do not seem to be decisive and appear to be in none core areas of its business.

Anil Ambani who in 2005 got the Finance, Power & Telecom business, went on an expansion overdrive. Today he finds himself excessively debt ridden in most of his ventures, add to that heavily embroiled in a scam. Things appear far more messy for him as his flagship companies continue to see lower profits and further losses. With high inflation and global recession, access to funds at economical rates appear dim for money, might see ADAG group further sell more productive assets to reduce debt.

Is the worst over for them before things shine again or further damage to market value of their stocks' is possible? A study of the technical charts of their flagship stocks suggest accordingly:

Reliance Industries (733)
In weekly charts the stock continues to make lower highs and lower lows, while in daily charts the stock has made a DOJI. It has a gap down @ 810 created on August 5, 2011 and is also trading below all its key moving averages. It faces resistance at 740 - 775. Failure to sustain above these levels might pull it down to 680 - 630.

Reliance Capital (387)
Weekly charts show the stock broke a sideways channel @ 590 in January 2011. Ever since then it has made a gap down in daily charts @ 515 on August 5, 2011, has formed a "M" shape pattern and Three Black Crows bearish candlestick pattern which suggest more downside in it. The stock faces resistance between 420- 440. Failure to sustain above these levels might pull it down to 320 / 275.

Reliance Communication (74)
Weekly charts show the entire corrective wave break-up since 2008. In daily charts the stock has a gap down @ 98.50 created on August 5, 2011. The stock faces resistance between 84 - 88. Failure to sustain above those levels might pull the stock down to 65 / 60.

Reliance Infrastructure (426)
In daily charts the stock continues to see selling pressure with a gap down created @ 560 on August 5, 2011. It now faces resistance at 455 - 475. Failure to sustain above these levels might pull it down to 325 - 300.

Reliance Power (82.55)
In daily charts the stock is trading below all its key moving averages and has two gap downs pending @ 108 created on August 5, 2011 and @ 95.50 created on August 9, 2011. It now faces resistance between 86 - 93. Failure to sustain above those levels might pull it down to 72.

CNX BANK INDEX

Weakness still persist in banking stocks as they become the first casualty to inflation and fears of slowdown in global markets. ICICI BANK takeover stake of a debt laden telecom tower co, shows how several coes are struggling with a sluggish economy. Rising Interest rates will make corporate inability to borrow at higher rates and weaken bank liquidity crises. Lenders have already cautioned of a higher bad debt with regards to loan repayments. More than $33 Billion has been pledged by promoters of which 17 of them have pledged over 90% of there holdings.

In daily charts CNX Bank Index (10182) is trading below all its key moving averages and in weekly charts it has broken its recent low @ 10000 of February 2011. Technical study indicates index is still trading in a major down trend and further downside in the short term till 9400 should not be ruled out unless it sustains above 10500.

A study of some of the banking stocks indicate that while all are trading below key moving averages some even have gap downs which are yet to be filled:

• AXIS BANK (1212) It has a gap created @ 1285 and is trading well below all its key moving averages. It has bounced from trend line support of 1185, if broken it can correct down to 1080 & 1000 in the short term. On the upside it faces resistance at 1255.
• BANK OF BARODA (825) In daily charts the stock has formed a bearish candlestick pattern of Three Black Crows which indicates further weakness in the stock. Currently it is trading near a support of 820, failure to hold that will lead to a fall till 800 / 775 in the short term. It might see selling pressure near 850 - 860.
• BANK OF INDIA (339) In weekly charts it is making lower lows and lower highs and is among the weakest PSU Banks showing signals of further weakness in the coming weeks. Unless it sustains above 355 it can fall down to 300 in the short term.
• HDFC BANK (468) After 2 DOJI Patterns indicating uncertainty in daily charts it has made a Large Bearish Candle. The stock finds resistance at 490 while a close below 460 will lead to a fall to 440 in the short term.
  
• ICICI BANK (940) It has made a gap down @ 990 and has broken near term support at 940. Unless it sustains above 970, the stock can correct down to 880 - 900 in the short term.
• PUNJAB NATIONAL BANK (1085) It has bounced from 1030 but finds strong resistance at 1120 where all its moving averages cluster. Failing to cross 1120 might take the stock down to 975 if 1030 is broken.
• STATE BANK OF INDIA (2195) It finds major resistance coming at 2275 while support coming in at 2100. Break of which can lead to a correction down till 1950 - 1925

GAIL

GAIL weekly chart shows a symmetry in a rising channel indicating a sharp fall is probable in the coming weeks. The stock did not correct in the recent market correction and remained sideways, The stock faces strong resistance at 485 and unless that is not crossed the stock can see a sell off if it sustains below 444 and can then target 405. Traders should short below 444 or buy only above 485.

SAIL

In weekly charts SAIL has this week covered a gap it had made in MAY 2009. The correction appears to be coming to an end. The stock maybe accumulated from an investment point of view. One strategy would be to buy 1/3 at current levels and the balance 2/3 either between 75 - 90 if it further corrects or above 185 in case it form a bottom at these levels. A two year target for the stock could be 300 - 350 in my view.

ONGC

ONGC weekly charts show the formation of a Head & Shoulder pattern which has a neckline @ 260. Trading below that level will give a minimum target of 215. It also shows a corrective abc from recent top.

Regards