[India Premium] Mid-Cap Update

August 20, 2018

During our August Members-Only Conference Call we discussed a lot of the big-picture trends from around the world and in India, but we wanted to do a long post discussing what we're seeing in the mid-cap space. In this post I'll cover what we're seeing in the index itself, as well as get into some of its most actionable components.

In last month's mid-cap update we discussed how there were some bullish divergences forming in breadth measures like new 52-week lows and stocks with momentum in a bearish range, but that we needed upside confirmation. Our list of ideas was skewed to the long side, focusing on leading sectors like Financial Services, IT, Consumer Goods, and Energy, but also highlighted a few short setups in areas like Public Sector Banks and Infrastructure that were still actionable at the time.

As we got more data and the mid-cap index (and small-caps) finally began to bounce, we saw opportunities to re-short some of the weakest names in the space while a neutral approach was best in the mid-cap index itself. Since that post two weeks ago, several of those setups have worked well and continue to. What I see now as I go through the entire Mid-Cap 150 is that there are fewer and fewer viable short setups and the number of long setups has grown significantly over the last few weeks. We're seeing the weakest stocks stabilize and the strongest stocks that were being held back by the broader index's performance begin to break out to new highs.

From a weight of the evidence perspective a neutral stance toward the Nifty Free Float Mid-Cap 100 Index remains prudent given its flat 200-day moving average, however, our bullish stance on equities as an asset class and the improving price action within this market-cap segment suggest erring on the long side is best.

With that said, throughout this post I'm going to outline the most actionable stocks I see in the mid-cap space on both the long and the short side. The biggest takeaway for me is the growing number of long opportunities and shrinking number of short opportunities.

While we want to be focused on the long side, I've included short setups for those that are interested in that type of exposure. If we're gonna be short, we should be short the weakest stocks in the weakest sectors. That's what we've highlighted below and in our previous posts mentioned above.

Longs:

We want to be buying weakness in 3M India Ltd. as long as prices are above 21,430 with an upside target of 34,185.

Aditya Birla Fashion and Retail Ltd. is breaking out to multi-year highs. If prices are above 188 we want to be long and taking profits at the former all-time highs near 228.

AIA Engineering is breaking out of an 18-month base. We want to be buying this breakout if prices are above 1,660 & targeting 2,235.

If AU Small Finance Bank Ltd. can break above 727 we want to be buying it with an upside objective of 869.

Bajaj Holdings & Investment Ltd. has yet to break out, but we want to be buying a move above 3,045 with an upside objective of 3,845.

Bata India Ltd. continues to work on the long side. We want to be buying weakness in this stock as long as it's above 896 and taking profits near 1,200.

Berger Paints is hitting our first upside objective of 338.50. If prices can consolidate and break above that level, we want to be buying the breakout with an upside objective of 437.50.

Cholamandalam Investment & Finance Company Ltd. needs to close above 1,550 to confirm a failed breakdown. If it can, we want to be long and taking profits near 1,940.

Dewan Housing Finance Corporation is attempting a breakout. If prices can close above 680 we want to be long and taking profits near 816.75.

We want to be buying a breakout in Divi's Labs above 1,225 and taking profits at 1,705.

Edelweiss Financial remains a long if prices are above 280, with an upside objective of 450.

EIH Ltd. is continuing higher after retesting the breakout level. If prices are above 152 we want to be long with an initial upside target of 219.50.

Endurance Technologies Ltd. recently broke out. If prices are above 1,405 we want to be long and taking profits at 1,605, at which point we'll reevaluate as our secondary target is 1,930.

Exide Industries Ltd. continues to consolidate above our first upside objective of 285. If prices are above this level we can be long with an upside objective of 343.

Glenmark Pharmaceuticals continues to carve out a bottom. If prices are above 600 we want to be long with an upside target of 830.

GlaxoSmithKline Consumer Healthcare Ltd. is attempting another breakout above 6,790. If weekly prices can close above that level we want to be long with an upside target of 8,075.

Gujarat State Petroleum Corporation Ltd. if continuing higher after retesting former resistance near 178. If prices are above 173 we want to be long and taking profits near 259.

Hexaware Tech continues to work on the long side. We want to be buying weakness in this stock if it's above 458, with an upside objective of 592.

Honeywell Auto India Ltd. just broke out to new all-time highs. If prices are above 20,070 we want to be long with an upside objective of 31,490.

Indian Hotels is pulling back to support near 115. We want to be buying this weakness with an upside objective of 166.50.

Jubilant Food continues to work on the long side. We want to be buying weakness in this stock as long as prices are above 1,355, with an upside objective of 1,955.

L&T Technology Services is breaking out to new all-time highs. If prices are above 1,545 we want to be long with an upside objective of 1,800.

Mindtree Ltd. is attempting another breakout above 1,063. If prices can close above that level we want to be long with an upside target of 1,475.

As long as Mphasis Ltd. is above 1,120 we want to be long with an upside target of 1,640.

Info Edge India Ltd. just made new all-time weekly closing highs. We want to be long if prices are above 1,472, with an upside target of 2,320.

Page Industries Ltd. continues to be one of the strongest stocks on the long side. We want to be buying any weakness as long as prices are above 28,060, with an upside target of 40,260.

Pfizer Ltd. just confirmed a new long-term uptrend by breaking out of a 3-year base. If prices are above 2,635 we want to be buying any weakness in this stock and taking profits near 3,260.

RBL Bank Ltd. continues to perk up. We want to be buying an eventual breakout above 599 and taking profits near 689.

Sanofi India Ltd. is a stock we want to be buying on any weakness as long as prices are above 6,000, with an upside objective of 7,340.

Solar Industries India just made new all-time highs. If prices are above 1,180 we want to be buying weakness in this stock and taking profits near 1,540.

Sterlite Tech Ltd. confirmed a failed breakdown a couple months ago and is a stock we want to be buying weakness in as long as prices are above 296, with an upside objective of 470.50.

Tata Global is holding former support at 234, which suggests a retest of its 2018 highs near 318 may be in the cards.

Torrent Pharma is breaking out of a 3-year base. If prices are above 1,700 we want to be long with an upside target of 2,030.

After a failed attempt earlier this year, United Breweries Ltd. finally broke out to new all-time highs. This is the beginning of a new long-term uptrend, so we want to be buying weakness as long as prices are above 1,220. Our first and second upside objectives are 1,555 and 2,085, respectively.

Whirpool of India Ltd. is consolidating below our initial price target of 1,778.50. If prices can close above this level, we want to be long with an upside objective of 2,530.

Shorts:

if Engineers India Ltd. is below 140.50 we want to be selling strength with a downside objective of 100.

We want to be selling strength in The Federal Bank Ltd. if below 94.75, with a downside objective of 74.50.

The bias in Gujarat Gas Limited remains to the downside as long as prices are below 805, with a downside objective of 685.

If prices in Mangalore Refinery & Petrochemicals Ltd. are below 85.50, the bias remains lower toward 64.50.

We want to continue selling strength in Reliance Power as long as prices are below 33.50, with a downside objective of 19.50.

Tata Communications is a stock we want to be selling if prices are below 610, with a downside target of 500.50.

Tata Power Company Ltd. continues to work on the short side. For risk management purposes we only want to be short if prices are below 68, with a downside objective of 55.50.