Technical Check: 100% rally in 2021! Breakout from Inverse Head & Shoulder pattern could push this logistics stock higher up by 40%

Shares of GATI Ltd have rallied by about 100 per cent so far in 2021 compared to the 21 per cent upside seen in the Nifty50 in the same period.

Investors who are looking to put fresh money into this Hyderabad-based supply chain solutions company could wait for a dip or deploy money at current levels for a target of 237-264, suggest experts. This translates into an upside of 25-40 per cent from Rs 189 recorded on 24 December.

The company with a market capitalization of more than Rs 2400 cr on the BSE hit a fresh 52-week high of Rs 203.50 on 27 December. It has been in a steady uptrend after hitting a low of Rs 144.20 on 29 November.

Gati Limited is one of India’s premier Express Distribution and Supply Chain Management companies, committed to delighting customers with seamless, end-to-end logistics solutions backed by future-ready digital tools and technology.

The company is targeting over 30 per cent steady state gross margins and 12 per cent EBITDA margins over few quarters, the management highlighted in a conference call post the September quarter earnings results announcement.

In Gati 2.0, the company would focus on 1) Infrastructure investment (trucking line haul comprise major portion of costs) – lowering turnaround time 2) To increase capacity utilisation of trucks as with volumes efficiency tends to increase.

Technically, the stock is trading well above the 30, 50, 100 and 200-Days Moving Averages. The stock prices have outperformed benchmark index Nifty as well as Midcap Index and the Nifty Midcap 100 as it gave more than 5x returns post the broader market sell off seen during the first quarter of the year 2020.

On the monthly chart, the stock prices have closed above the August 2016 swing high that acted as a stiff hurdle previously during this year in June.

“By closing above this stiff hurdle prices have confirmed a long term breakout where the pattern resembles an ‘Inverse Head and Shoulder’,” Rajesh Bhosale, Technical Analyst, Angel One Ltd, said.

Inverted Head and shoulder pattern is a technical pattern in which prices of a stock or an index falls to a trough and then rise again, and then fall below the previous trough and then rise, and finally fall again but not as far as the second trough.

A bullish signal is generated when the price rises above the resistance or the neckline. In GATI, the neckline breakout was seen in December month closing candle on the monthly chart when prices breached Rs 200.  

“Since this breakout is seen post a recent consolidation; the RSI oscillator on the daily chart is far from its overbought zone and hence post a breakout it has a good potential of up move in the near term,” says Bhosale.

In addition, the recent volume activity is in sync with the price pattern. “We sense the online shopping, e-commerce is here to stay and is the way forward. With this, we sense this sector has rapid growth potential in the long run,” explains Bhosale.

Hence looking at all the above scenarios, Bhosale expect this mid-cap to give splendid returns in the near term and hence we recommend a buy at current levels and on a dip to Rs. 180 for a target of Rs. 237 and 264. The stop loss can be placed at Rs. 144.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)