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Bullish Engulfing: F&O Stock Recovers 5%, Depicts Good Upside!

Published 22-11-2022, 01:20 pm

After a lackluster opening of the benchmark Nifty 50 index, it is currently trading off the session’s low at 18,200, up 0.24%, as of 12:50 PM IST. The recovery in the broader markets helped some stocks to trade back into the green zone and one small-cap counter that is catching investors’ attention is Gujarat Narmada Valley Fertilizers & Chemicals Ltd (NS:GNFC).

The company has a market capitalization of INR 8,953 crores and manufactures and sells various fertilizers, such as urea, ammonium nitro phosphate, etc. under the brand Narmada. It is one of the least-expensive fertilizers stocks currently available in the market, trading at a P/E ratio of a mere 5.23 which is less than half of the industry’s P/E of 13.43. The dividend yield of 1.74% further adds to its appeal. 

In FY22, the company achieved the milestone of crossing the INR 1,000 crores mark in the net profit figure, at INR 1,710.41 crores which was over 145% higher than the FY21 net income of INR 696.95 crores. The company’s net income has been growing at a 5-year CAGR of 26.46% which is quite good for a small-cap company. This is one of the reasons why FII’s have almost doubled their stake in the company, from 11.68% in June 2021 to 22.37% in September 2022.

Image Description: Daily chart of GNFC

Image Source: Investing.com

Coming to the technical analysis of the stock, there’s no denying that it had taken quite a hard beating in the last few sessions. The stock opened the month’s trading at INR 709.15 and soon tanked to a low of INR 549.15, marked on Friday. However, this week seems to be providing some relief to investors as the stock has started its phase of recovery.

On the daily chart, the stock formed a Bullish Engulfing pattern at the lowest level of the month which is a healthy sign of abating supply. This is a two-candlestick pattern that generally forms during a downtrend and signals a reversal in the trend toward the upside. Although, it’s a very short-term pattern therefore a significant reversal should not be expected, but a decent recovery after a Bullish engulfing should not be ruled out.

The stock has already gained over 5% this week as investors are getting lured to the cheap valuation. Looking at the upside potential, a bounce back to the level of INR 640 is quite achievable, especially considering the fact that it is rising from the oversold zone. 

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