This year has been a very trending one for the equities. Global equity indices have been trending higher and India is no exception. In fact, the Indian equities have performed in line with the US Equities. While the S&P500 Index has gained 15.20% on a YTD basis, the Nifty 50 has staged an equally impressive show by gaining 14.63% over the same time.

However, the equities look a bit overstretched on the charts. They also remain significantly deviated from the mean and may now consolidate in a broad but defined range. Having said this, there are two things that portfolio investors would need to do; first, guard profits vigilantly at higher levels; and second, switch and rotate their investments into stocks that are showing impressive technical setup and improving relative strength.

This large-cap engineering conglomerate falls in this definition. For the majority of 2024. this stock has stayed in a sideways trajectory and has traded in a defined range oscillating back and forth and staying devoid of any directional bias.

Besides being an important constituent of other sector indices, LT is one of the major constituents of the NIFTY 50 Index. After HDFC Bank, Reliance, ICICI Bank, and Infosys, LT enjoys the fifth largest weight in the index. While the benchmark Nifty 50 gained 14.63% on a YTD basis, LT has returned 9.80%, and that too the bulk of the gains coming just in the last couple of days. If we discount that, the stock would have been flat for the whole of 2024.

From a technical standpoint, the stock looks set to resume its upmove and rise meaningfully from its current levels. A close on 29th July has seen LT closing above the upper Bollinger Band. While a temporary pullback inside the band cannot be ruled out, this has certainly set the stage for a possible trending move on the upside.

The RSI has marked a new 14-period high; it is neutral and does not show any divergence against the price. The stock has also shown evidence of strong accumulation while it was trading in a range and also it has shown proof of participation of volumes in the current upmove that was seen over the past few days. This has come in the form of On-Balance Volume (OBV) inching higher and hovering around its highs.

The stock is inside the improving quadrant of the RRG when benchmarked against the broader NIFTY 500 index; on the weekly timescale, it is on the verge of entering into the improving quadrant.

A strong improvement of relative momentum is seen in the stock; Relative Strength is also seen changing its trajectory for the upside.

LT qualifies and makes a strong case for a favorable sector/stock rotation and inclusion in the portfolio. With earnings already out of the way, all declines would qualify for a entry in the stock so long as it keeps its head above 3580 level which is a confluence of two major pattern supports.

Going by the classical price measurement implications, an upside target of 4100 can be expected; it should also be noted that a close below 3580 would negate this technical setup.

Foram Chheda, CMT,
Technical Research Analyst