Maruti comes back to relative outperformance
- CMP: 9200
- TARGETS: 9800-10000
- CALL: SPOT, DERIVATIVES
- STOPLOSS: 8800
- TIME FRAME: 30-60 DAYS
Today Maruti hits fresh 6 months high at 9221 after 6 months of underperformance and falling from all-time highs of 10000. The stock today gave an upper trendline breakout connecting the successive highs in last 6 months along with upper Bollinger band.T he stock is well placed to capture the movement as the cmp>10 dma>20 dma>50 dma>200 DMA. This is an absolutely perfect setting and is also an ideal buying range of 9000-9200 and technical indicators have also given bullish signals.
We expect the stock to retest its lifetime highs as a stock is showing abnormal strength and has got its mojo back after weak sentiment hovering on the stock for last 6 months. This is the time to buy large-cap stocks as people are looking for safe heavens in these tough times. Maruti is the best pick to play the passenger vehicle growth in the country. There are not too many auto stocks showing strength as Eicher, Bajaj auto, TVs motors, Ashok Leyland, escorts and others are hitting new 3 month lows while this stock is hitting new highs which shows that money is chasing this stock from other large-cap auto stocks.
This call is a blend of technical and fundamental strength in stock also the June monthly sales nos of Maruti were quite robust and its great play on premiumization of cars as India moves up the per Capital income graph. This is the company which shall continue to grow above 20% net profit growth for next 3 years easily.
The beauty of this company is -:
A) Debt free nature.
B) Negative working capital cycle as it sells goods in cash and purchases goods on credit.
C) Market share of above 40% in a car market.
D) Good returns on equity and good returns on the capital profile.
E) Shows volume growth across market cycles.
F) Duopolistic nature of the business where 2 car companies with HYUNDAI has more than 70% market share.