The recent mayhem in the Indian stock market has delivered a severe dent to investors’ portfolios. While the benchmark Nifty 50 index is down about 16.2% from the all-time high, some stocks have lost more than half of their values from their respective highs.
From the perpetual list of stocks making a new 52-week low during this ongoing correction, one lesser-known stock that probably seems to be done with its massive correction is Sadbhav Engineering (NS: SADE ) Limited. The company is focused on developing and maintaining infrastructure projects such as roads and highways, preparing sites for mining etc.
Shares of Sadbhav Engineering have already cracked more than 81% from its 52-week high of INR 96.5, marked on 30 June 2021. Since the fall from the highs, every minor rally had been capitalized as a selling opportunity and investors kept on liquidating their holdings which further cascaded the downtrend.
Image Description: Daily chart of Sadbhav Engineering
Image Source: Investing.com
On 21 June 2022, the share price of Sadbhav Engineering tanked to an all-time low of INR 12.8 on a noticeable increase in volume. To put it in perspective, the day of the all-time low showed a 10-day average volume of 1.92 million shares, which was a mere 544K at the start of the month. This increase in the volume figures as the stock approached the bottom indicates that weak hands seem to have gotten out of the stock.
A sign of bottoming out was depicted by the RSI indicator which showed an extremely oversold reading of 13.9, which is not very common. Soon after the stock hit a bottom, the selling started to abate, followed by a very sharp bounce back. The counter-rally had been so strong that the stock has been hitting its 10% upper circuit limit for two consecutive sessions now.
The rise of the stock is attracting quite less volume as compared to the volume on the way down, which might make some investors skeptical about the current rally. However, this is due to the fact that the stock has been hitting upper circuits, which leaves a lot of orders unfilled at the highest price due to the lack of sellers. These unfilled orders lead to a lower volume, hence it is not the ‘actual low volume’ rally which is talked about in the technical parlance.
Now the bigger question is; How far the rally can stretch? Looking at the charts, Sadbhav Engineering shares can rally up to the nearest resistance of INR 22.5. This might seem too much looking at the current price of INR 16.05, however considering the consistent decline from INR 96.5 and a 20.6% rally from the bottom, a 40% rally from the CMP doesn’t seem impossible.
Although it is a bounce-back which is expected from an oversold zone, the broader trend is still negative. Once the stock breaks above its falling trendline, the short-term trend could be deemed as positive. This trendline break could also accelerate the stock's move towards the horizontal support of INR 22.5.
It is also to be noted that the stock has a very high percentage of promoter holdings as pledged, (almost 42.24% of the total 44.63%) which raises a question about the financial viability of the business. Therefore, before making an investment decision please do your own due diligence.
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