[India Premium] Small-Cap Update

In last month's small-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 mixed, 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 small-cap index (and mid-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 Small-Cap 250 is that there are fewer viable short setups and the number of long setups is slowly starting to grow over the last few weeks. We're starting to see the weakest stocks stabilize and the strongest stocks that were being held back by the broader index's performance are making new highs. With that said, there's less evidence that this is broad-based like it is in mid-caps.

From a weight of the evidence perspective a neutral stance toward the Nifty Free Float Small-Cap 100 Index remains prudent given it's below a downward sloping 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 small-cap space on both the long and the short side. The biggest takeaway for me is the slowly growing number of long opportunities and slowly shrinking number of short opportunities. This is the type of action is indicative of a bottoming process, but there's not as much evidence as mid-caps that we want to be aggressively long. A lot of stocks remain in a place where "neutral" is best until we get a more decisive resolution one way or another. The small list discussed below reflects that.

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.

Long:

If Aarti Industries Ltd. is above 1,390 we want to be long with an upside objective of 1,740.

The breakout in Atul Ltd. is one we want to be buying. If prices are above 2,978, we want to be long with an upside objective of 3,615.

Bliss GVS Pharma may be setting up for another breakout attempt. If prices can close above 214 we want to be long with an upside objective of 334.50.

Cyient Limited is a stock we want to be buying on a break above 810, with an upside objective of 1,080.

Infibeam Incorporated is a stock we want to be buying on pullbacks if prices are above 178.25, with an upside price target of 233.

Intellect Design Arena is back toward the top of a nearly 3-year range. If prices are above 275 we want to be long with an upside objective of 383.50.

Jai Corp. Ltd. is a stock we want to be buying on a break above 169.50, with an upside objective of 252.

We continue to wait for a breakout in Just Dial Ltd. If prices get above 622.50 we want to be long with an upside objective of 920.

We want to be buying Persistent Systems on a breakout above 958, with an upside objective of 1,205.

Shoppers Stop continues to consolidate just under all-time highs. If prices are above 625 we want to be long with an upside objective of 847.

We want to be buying Sonata Software if prices are above 384, we want to be long with an upside objective of 610.

Sunteck Realty Ltd. has already run, but we can be buying weakness as long as prices are above 350 and taking profits near 513.

Suven Life Sciences continues to consolidate near multi-year highs. If prices are above 215 we want to be long with an upside objective of 352.

Tata Elxsi is a name we want to be buying on weakness if prices are above 1,250, with an upside objective of 1,627.

We want to be buying weakness in Vinati Organics if prices are above 1,155, with an upside target of 1,645.

We want to be buying weakness in VIP Industries Ltd. if prices are above 466, with an upside objective of 731.50.

Shorts:

Can Fin Homes Ltd.is a name we want to be selling if prices are below 320, with a downside objective of 220.

We want to be short Jain Irrigation if prices are below 86.50, with a downside objective near 47.

Jaiprakash Associates Ltd. is a name we want to be short if prices are below 14, with a downside objective of 9.30.

We want to be fading strength in Srei Infrastructure Finance Ltd. if prices are below 71, with a downside objective near 30.

These are the most actionable set ups from our view, but let us know if you have any other small-cap stock you'd like analysis for.

Thanks for reading and let us know if you have any questions.

Allstarcharts Team