Published on 21/10/2020 1:11:43 PM | Source: ICICI Direct

Quant Pick - Buy Larsen & Toubro Ltd For Target Rs. 1080 - ICICI Direct

Posted in Broking Firm Views - Short Term Report| #Real Estate Sector #Trading Report # Larsen & Toubro Ltd #ICICI Direct

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Derivatives and Quantitative Outlook…

* The current rally of the index has seen broader market participation where technology and pharma stocks have significantly outperformed. In the past couple of weeks underperforming sectors like BFSI saw a decent recovery whereas infrastructure stocks have continued to underperform the index. With the recent recovery in cement stocks, we expect buying to be witnessed in the infrastructure sector as well. Heavyweight like Larsen & Toubro (L&T), which have remained largely range bound in the last couple of months, may find fresh momentum in coming weeks

* L&T has remained largely range bound between | 860 and | 1020 in the last five months despite broader market volatility. The stock seems to be moving towards the higher band of the range. Moreover, with the stock moving to its two-month highs with noteworthy delivery activity, a round of short covering is expected

* Open interest in the stock declined sharply in June amid short covering. Since August, the stock has witnessed a down trend with marginal short additions. That position has closed near the lower range of the trading band. We now expect momentum to be seen along with addition of long positions in coming sessions

* L&T has started the current series with low open interest. Since then, it has been witnessing accumulation near the support level of | 900. With continued Put writing in 900 and 860 strikes, we expect downside risk to be limited. On the other hand, Call OI of 920 and 940 strike is already witnessing closure of positions suggesting upsides in the stock. These positions are expected to aid it to break the option range on the higher side

* On the delivery front, one of the biggest delivery volumes was seen in mid-September 2020 at | 850-860, which is the lower band of the said range. Recent delivery pickup seen in September in the stock is one of the highest seen in March 2020. At that point, a sharp recovery was seen in the stock. We expect the positive bias to continue in the stock this time as well


Buy Larsen & Toubro in range of Rs. 910-930, Target: Rs. 1080; Stop Loss: Rs. 855; Time frame: Three months


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