4 major PSU rail stocks in overbought state, profit booking ahead: Anand James

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Chief Market Strategist Anand James

After gaining an average of 14% this week and more than 30% in the last one month, railway stocks may now come under some profit booking pressure. “4 out of 5 major railway stocks like RVNL, IRFC, IRCTC and Railtel are overbought with RSI above 75. Even though the outlook for these stocks remains bullish, expect some profit booking in the near term before the bulls regroup,” said Anand James, Chief Market Strategist at Geojit Financial Services.

1)Given the broad-based buying seen in the market this week, do you think Nifty will easily scale the 20,000 peak ignoring all the concerns around the spike in crude oil price and dollar? What are the targets?

Seven weeks after coming off from the record peak in December 2022, Nifty is back within its vicinity, with a weekly close above the 7 week SMA. Further with just 23% of NSE 500 stocks in the 5% vicinity of their respective all time highs, market is only in the initial stages of a broad based rally. We are confident of continuation of uptrend, with Nifty’s upside target raised to 21200.

2) Nifty PSE and Nifty CPSE stocks were the top performers in the week. Do you see any signs of the PSU indices being at an overbought stage?

Nifty PSE and CPSE indices have moved into the overbought zone with RSI moving above 80 in daily, weekly and monthly time frames. However, only 45% from Nifty CPSE and 35% of Nifty PSE stocks have moved into the overbought zone which is hinting that we may see new leaders from the segment in the coming days.

3) MMTC surprised with a 50% plus rally in the week. What’s working in its favour? What should traders who missed out on the rally do now?
After crossing 44, which has been acting as a lid to upsides since December 2022, MMTC’s price rocketed and in just four days, it gained as much as it did in the last four months. With a bearish engulfing candle forming on Friday, traders who missed out on the rally could afford to wait for declines to 60 or even 53 for fresh entry.


4) Rail and defence PSU stocks like IRFC, Cochin Shipyard, Mazagon Dock and RVNL were unstoppable in the week. Should one keep chasing these high-fliers?

  1. It would be wise to be remain selective in the case of highfliers among railway stocks in the near term. Railway stocks gained an average of 14% this week and more than 30% in the last one month. 4 out of 5 major railway stocks like RVNL, IRFC, IRCTC and Railtel are overbought with RSI above 75. Even though, the outlook for these stocks remains bullish, expect some profit booking in the near term before the bulls regroup. Apart from that, railway related stocks like BEML and Concor have more steam left in them which could attract buying in the near term.
  2. Similar is the case with Defense stocks. With majority of the PSU defense stocks moving into the overbought zone, we should expect some consolidation before the next round of upmove.
  3. The rally in PSU stocks was not limited to Railway and Defense but power finance companies like PFC and Recltd gaining over 15% on an average this week.


5) Give us your top trading ideas for the week.

SHRIRAMFIN (CMP: 1954)
View            :         Buy
Entry range   :         1955 – 1940
Targets         :        1990 / 2040
Stoploss        :        1912

The stock has been moving within a narrow range of Rs.200 since the middle of July and seems to be breaking out of the upper range hurdle on daily time frame forming a daily candle resembling Marubozu hinting at fresh round of upmove in coming days. RSI remains at 66 showing strength in the ongoing trend. We expect the stock to move towards 1990 and thereafter towards 2040 in next few weeks. All longs may be protected with stoploss placed below 1912.

CHOLAFIN (CMP: 1176)
View            :         Buy
Entry range   :         1180 – 1165
Targets         :        1227 / 1275
Stoploss        :        1133

The reversal that started in August shows no sign of pause. RSI remains strong at 67 and monthly charts witnessing highest closing since June is hinting at resumption of upside. We expect the stock to move towards 1227 and thereafter towards 1275 levels in the next few weeks. All longs may be protected with stoploss placed below 1133.

First published in Economic Times

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