There is a saying -
- One can buy a damaged chart but one should never buy a damaged business.
- Charts get damaged much before the real business.
Bharti stock now needs to be discussed in this context. The way stock has been dumped in last one week really raises lots of question on the industry itself. The big question everyone is asking - where stock can go next.
In this article, I am making an attempt to answer the above question technically. Let us look at Bharti chart for some answers.
Bharti Daily Chart
Source: ChartAlert [www.chartalert.com]
Event: Breakdown below key support level: Bharti has broken down below two important support levels -
- 200 dma: As you can see in the chart above, Bharti stock has slipped below 200 dma last week - technically very disturbing sign.
- Horizontal support line of 370: This was the level - Bharti chart was holding during the entire BHARTI-MTN deal. But post industry wide tariff war announced by RCOM, the stock has even broken this level.
Currently, 200 dma and 370 coincides; and since Bharti stock is oversold, a relief rally to 370 cannot be ruled out in short term. But that’s not going to end the bad time for Bharti investors.
What Next after relief rally to 370?
Best Case - In a strong market, even weak stocks hold up. [Remember, Glenmark stock - how badly it suffered in the month of August on core business issues but the strong market has helped the stock to retain its price level.]
Bharti after strong sell off may turn sideways between 320 and 370 for a good period of time now. But one thing is certain - the stock will not be able to make strong gains for good period of time. It may best remain sideways. The reason - there is no case for out performance; and stock when it gets liquidated in such a big way will always have a pressure of oversupply at higher levels.
Worst Case - If market starts correcting sharply from current levels, then the stock will find more pressure. Technically, the stock can slip to 270 - the support level during 2008. [see in the chart above]
Final View: Long term investors can look to accumulate the stock around support levels of 280. Bharti is one of the best managed companies in India and hence it will find buyers at lower levels because of cash flows, mouth watering valuation and superior management.
It’s not that everyone is bearish. UBS in its latest report view Bharti very positively; and has put price target of Rs. 480. I guess right now the issue is not where Bharti stock can go on the upside but which is the price level on downside that offers attractive margin of safety.
Right now - the level where Bharti looks attractive is around 280.
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