Despite a slight weakness in the benchmark Nifty 50 index which is trading 0.3% down at 18,301, by 1:26 PM IST, some stocks are unaffected. Piramal Enterprises (NS:PIRA) which recently demerged its pharma business is finally making some noise on the street. The company has a market capitalization of INR 19,882 crores and is now a financial business only, as opposed to a diversified conglomerate prior to the demerger.
After the ex-demerger date, on 30 August 2022, the stock had been sinking lower on a consistent basis. It seems like investors were making a run as even after the adjusted price, the stock tanked over 25%. But now the tide seems to be turning in the favor of the bulls. Very recently, when the stock marked its 52-week low of INR 786.15 on 17 October 2022, and it also formed a bullish divergence on the daily chart.
Image Description: Daily chart of Piramal Enterprises with the RSI at the bottom
Image Source: Investing.com
As per the RSI (daily, 14) when the divergence was being formed, Piramal Enterprises’ shares were already trading in the oversold zone, with the RSI showing a reading of around 26. The confluence of both the oversold reading coupled with the formation of a bullish divergence turned out to be a perfect recipe for a reversal from there.
Since the last few sessions, the stock had been gradually inching higher, but today it soared over 5.1% to the CMP of INR 880, depicting the bulls are getting more aggressive from here. As the stock had been quite heavily beaten down, the potential on the upside has increased. The current resistance of around INR 950 would act as an immediate supply zone for the stock, but thill there it has an open runway.
A stock rising from the very bottom gives a very good risk-to-reward ratio to investors who are willing to make a counter bet in the anticipation of a reversal. One thing to note here is, there is a very huge gap being left on the chart which should not be confused with a regular gap which has a good chance of getting filled. This is the adjustment of corporate action (demerger) and therefore traders should not assume that it is bound to be filled. In other words, don’t get overly bullish on the stock.
On the downside, if the stock starts to trade below the support of INR 786, the implications of a bullish divergence should be deemed to have failed here.