The defence equipments and engineering sector has been quite vibrant over the past couple of weeks and it is seen relatively outperforming the broader markets. This year it has already given a return of nearly 50% on average, while still leaving some more potential for an upside. After the banking, financials, media, textiles, and autos, it is now the defence equipments and engineering Industry stocks that are in the trend lately. This year some of the stocks like Mazagon Dock Shipbuilders Ltd, Cochin Shipyard and a large cap stock like Bharat Forge has moved up nearly 90%, 50%, and 34% from their lows respectively in this year.  

Paras Defence and Space Technologies Ltd (PARAS) is once such stock that holds potential for a significant upside. It has already moved up ~55% this year from its lows and has the potential to move higher by another 10% to 12% from the current levels.

Since Nov’21, the stock price of Paras Defence was in a corrective downtrend forming lower tops-lower bottoms until June this year. Finally, after forming a bottom at 523 levels, the stock price gradually changed its trend. It witnessed a gradual up-move and crossed above the 50-day moving average as well the 100-day moving average while it found resistance at the 200- day MA Technically speaking, when the stock price moves above the important moving averages it usually indicates that the underlying trend of the stock has turned bullish.  Following the up-move, the stock price faced difficulty in surpassing 680 levels which coincided with the downward sloping trendline resistance. This level acted as a strong resistance for the stock, and it retraced near the 50-day and 100-day moving averages which acted as a support level for the stock

After holding well above the 50-, and 100-day moving averages, the stock price resumed its move  move higher. By the end of August, the stock price not only broke out from the price pattern at 657 levels but also crossed above the 200-day moving average. Such a price action was accompanied by an exponential increase in volume which confirmed the potential upside in the stock.

Following the breakout, the stock price consolidated near 695-710 levels. While the stock shows a corrective retracement, the 50-day moving average has also crossed above 200-day moving average resulting in a Golden Crossover.

Presently, the stock price has retraced nearly 38.2% as per the Fibonacci retracement levels which invite buying opportunities at current levels. The likely up move in the price may see the stock testing 815 levels and this would mean a potential upside of ~10% for the stock. Any price moves below 685 should be considered to move out of the stock.

Foram Chheda, CMT