Pharma stocks have shown significant outperformance vis-à-vis the index and stocks like Dr Reddy’s have been quite range bound in recent days. The stock has shown significant resilience in intermediate market corrections and no major delivery based selling was seen. The price distribution is also suggesting limited downside movements in the stock.
The lowest reading for stock is in the -2% to -3% range. From a delivery perspective, the last couple of weeks saw below average delivery as the stock has been consolidating in a range. However, the Z score has started moving up, indicating increased delivery volume along with recent upsides suggesting strong hands are accumulating the stock.
The 30 day volatility continued to remain lower and now 60 Day HV is also coming down sharply. With 60 day volatility subsiding, we believe momentum would come in the stock. It is likely to move higher along with the further decline in volatility.
Buy Dr Reddy’s in the range of Rs. 4380-4460, Target: Rs. 5150; Stop Loss: Rs. 4030; Time frame: Three months
Godrej Consumer Products
Among FMCG stocks, which have shown relative underperformance in the recent market move, Godrej Consumer has shown significant accumulation in its price distribution pattern. Stock daily returns are largely distributed from 0-2%. However, considering the volatility, the right tail is significantly longer than the left tail indicating buying at every decline in the stock.
From a delivery perspective, despite profit booking seen in early September, no major delivery activity was seen. After a brief consolidation, the Z score has started turning positive suggesting buyers accumulating the stock at lower levels. With the recent surge in Z score, fresh buying is evident.
The 60 day volatility for the stock has almost tested 30 day volatility levels suggesting stability in the stock and limited downsides. We expect the stock to continue its upward bias while momentum is likely to be seen.
Buy Godrej Consumer Products in the range of Rs. 690-705, Target: Rs. 815; Stop Loss: Rs. 630; Time frame: Three months
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