Last Updated on Feb 21, 2022 by Aradhana Gotur

This article is authored by Kunal Rambhia, a fund manager at The Streets, a private fund. He has been in the equity market since 2010, performing various roles such as Associate Research Analyst, Research Analyst, and Associate Portfolio Manager. He has media appearances with CNBC and ET NOW. Kunal is also a visiting faculty in multiple colleges.

Hello all, herein I share my view on HDFC Ltd. It’s been in limelight due to its longer underperformance (Since January 2020). But, blessings in disguise, sometimes longer underperformance ends up offering better risk-reward opportunities for positional players 🙂

The beauty of technical analysis is the evaluation of multiple timeframes to understand trends, formations and favourable entry zones. Let’s take a deep dive into monthly, weekly and daily charts and understand better. 

This is the monthly log chart of HDFC Ltd. Price has taken support of this bottom trend line multiple times in the last 15 yrs. Also, the horizontal support trend line (highlighted with white dotted line) shows that HDFC has taken horizontal support multiple times near high, highlighting its ‘time correction’ rather than price correction. Recently, the price has remained within sideways consolidation since January 2021. There is a bright possibility of support in place. Also, the present zone can be a very decent level for investors to keep an eye on accumulating the counter as 2 support trendiness is in conjunction with each other. 

Weekly chart – Consolidation zone

The stock seems to be in a perfect consolidation zone since February 2020. After the extreme decline of COVID phase and sharp recovery post-pandemic, the stock is back at the same zone. This seems to be the perfect ‘Mean’ of the counter. It’s near the lower end of the consolidation and offers the best risk-reward for positional players. 

Weekly Chart – Fibonacci Ratio tool

Compared to the recent incline from 2020 to 2021, the recent two corrections seem to be holding up 38.2% zone. The last week’s correction was a little dip and remained within the zone of 38.2% to 50%. Recovery by the end of the week was sharp, creating ‘Hammer’ formation and closing was above 38.2%, confirming a good support zone. 

Weekly Chart – Ichimoku indicator

Since 2014, the counter has taken support of Senkou Span B of Kumo Cloud. Few minor whipsaws were noticed, but more or fewer odds for support are clearly more. Reliability is even higher due to candlestick formation. 

Weekly Log Chart – 200 EMA

HDFC seems to be respecting 200 EMA on the weekly chart in a much bigger way. There were only 2 exceptional events (2008 and 2020) in the last 19 yrs. The exact level of 200 EMA on the weekly chart comes to 2205. Instead of the exact level, one should consider the support zone and try to find an entry in the counter. 

HDFC vs Nifty Weekly Ratio Chart

The ratio chart of HDFC and Nifty is plotted here. The chart seems to be forming a ‘falling wedge’ with perfect 5 points so far and the last candle is ‘hammer’ right onto the support trend line. The formation is bullish in tone and the candle supports the possibility of HDFC outperformance vs Nifty in the time to come. 

HDFC vs HDFC Bank weekly ratio chart

The ratio chart of HDFC vs HDFC Bank is highlighting a broader consolidation since mid of 2017. The ratio chart is showing action right near the low of consolidation with again ‘hammer’ formation. This highlights possible HDFC outperformance vs HDFC Bank in the time to come. 

Daily chart with possible Wolfe wave

The daily chart of HDFC bank was showing ‘falling wedge’ formation with lower breakdown and reversal. The reversal had sizable volumes compared to the past. This confirms the Wolfe wave structure on all parameters. As per the formations, one can expect a target of 2900 by July 2022.

Kindly note that due to the lower time frame, it is important to remain flexible with a shorter time horizon in mind. 

Putting it all together

Looking at monthly time frame trend lines, weekly formations, indicators like exponential moving average and Ichimoku, with Fibonacci supports, Ratio chart of HDFC with Nifty and HDFC Bank, I think this can be a good positional long bet. I look at the counter as a trending/growth counter and so give importance to a favourable risk-reward ratio. 

Statutory Disclosure: Kindly note that this update is only for educational purposes. It is safe to assume that my personal position, my fund’s position, my client’s position and my relative’s position may be open at the counter. Prefer to take the advice of your financial advisor before initiating any position. 

Kunal Rambhia

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