Technical Check: Time to buy? This largecap pharma stock which hit a 5-year high could surpass 1200 in near term

Sun Pharma rose over 40 per cent in the last 1 year compared to 17 percent upside seen in the Nifty50 in the same period and the rally is not over yet, suggest experts.

The largecap pharma company has a market capitalization of more than Rs 2.1 lakh cr hit a 5-year high of Rs 902.50 on 4 February. Formation of a rounding bottom on the weekly charts suggests that the uptrend is likely to continue.

A rounding pattern is identified when a series of price movements graphically make the shape of ‘U’. The pattern is usually formed at the end of a downtrend and signals a potential reversal in long-term price movement.  

A daily close above 860 has helped the prices to kick in momentum till 900, and now a move past 925, will further add fuel to raise it above the saucer edge.

Sun Pharma rose over 8 per cent in one week, and nearly 7 per cent in the last one month. It is trading well above all the crucial short- and long-term moving averages of 30,50,100 and 200-DMA.

Investors who are already invested in Sun Pharma can hold the stock while fresh money can be deployed at current levels or on dips.

Post the breakout from the resistance range suggests a higher target for Sun Pharma towards Rs 1200 which translates into an upside of over 30 per cent from Rs 894 recorded on 4 February, suggest experts.

Sun Pharma is a low beta stock and has been on the buy list of both foreign and domestic investors. Foreign investors increased their holding from 12.07 per cent in September quarter to 13 per cent in the December quarter, data from Trendlyne showed.

Mutual Funds also increased their holding from 11.72 per cent recorded in September quarter to 11.80 per cent at the end of December quarter.

The scrip chart belongs to the Pharma sector which was the top-performing sector in 2020 and 2021 amid the COVID-19 pandemic situation across the world.

The sector was recently beaten down from the first week of October 2021, which took it down by close to 15 per cent.

Given the current state of the market, finding bounce backs from deeply oversold territory assumes a greater safety net as compared to being behind momentum bets which are highly susceptible to overnight gap-up & gap downs. The beaten-down sectoral chart provides an ideal risk to reward ratio, suggest experts.

“Unlike the sectoral structure, which has been in a corrective; Sun Pharma has been in a clear outperformance mode. The chart of Sun Pharma has just not just a 52-week high in the week gone by but vaulted to 5-years high,” Pushkaraj Sham Kanitkar, VP (Equities) at GEPL Capital Ltd, said.

“It can be seen from the chart, the longer-term chart of Sun Pharma has formed a clear-cut rounding bottom, that is popularly known as “saucer pattern”. The more interesting portion is the symmetrical formations that the chart is showing,” he said.

The FY 2020-21 as well as CY 21 has shown great respect for the trendline marked in dark pink. The chart thereby shows a mirror image in downturn till March 2020 and then the uptrend till date.

“The short-term chart of Sun Pharma shows the second level breakout on the daily chart once it broke above the level of 860, the earlier TOP of CY 21,” explains Kanitkar

A daily close above 860 has helped the prices to kick in momentum till 900, a move past 925, will further add fuel to raise it above the saucer edge.

“The projected implications will see it to all-time HIGHs at 1200 with a pattern projection taking it to 1460 levels. An initial stop loss should be placed somewhere below 800; the current intersection of the trendline,” recommends Kanitkar.

(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.)