Adani Power shares have witnessed a notable 15% surge across three consecutive sessions, hinting at a potential additional 10% upward movement in the near future. However, financial experts advise that any new investment decisions related to the stock should be approached cautiously, focusing on opportunities created by market declines to maintain a favorable risk-to-reward ratio.
Despite a recent 8.1% stake sale to US-based investment firm GQG and other investors, amounting to a substantial $1.1 billion deal, Adani Power’s stock has displayed remarkable momentum. This trajectory commenced following a 52-week low at Rs 132.40 on the NSE on February 28, precipitated by the Hindenburg report. Since then, the stock has experienced impressive returns, multiplying investors’ investments by 145%.
In contrast to a negative 1.42% return delivered by the 50-stock Nifty over the past month, Adani Power shares have surged over 37%. Presently, the shares are trading above both their 50-day and 200-day simple moving averages (SMAs), with recent data indicating that the stock has entered an overbought zone, as evidenced by an RSI and MFI of 78 for both indicators.
The current rally still presents potential for an additional 10% upside from the recent closing price if the stock surpasses the immediate resistance level of Rs 330. Anuj Gupta, Head of Commodity & Currency at HDFC Securities, identifies a favorable trend structure, highlighting higher tops and higher bottoms. He recommends a buy on market declines and sets the next target at Rs 360. Moreover, the stock’s recent performance indicates a bullish trend in the medium-to-long term, supported by surpassing short and medium-term averages.
Technical and Derivatives Research Senior Vice President at Axis Securities, Rajesh Palviya, affirms the bullish trend, citing a Cup & Handle formation breakout at Rs 292 levels, accompanied by substantial volumes, indicating increased market participation. Palviya predicts that weekly and monthly strength indicators could drive the stock to levels between Rs 360 and Rs 430, translating to a 10-32% potential upside.
Assistant Vice President of Equity Research Technical and Derivatives at Centrum Broking, Nilesh Jain, acknowledges the stock’s positive chart patterns and anticipates the achievement of short-term targets at Rs 330. Jain cautions that after a 15% rally, the risk-to-reward ratio appears less favorable, advising investors to wait for the stock to dip to around Rs 300 before considering a buy.
Conversely, Aamar Deo Singh, Head of Advisory at Angel One, recommends profit booking due to the consistent four-week run of the stock closing in the green, with a 6% week-on-week increase as of Friday.
Given Adani Power’s historical volatility and its tendency for sharp fluctuations, informed investment strategies are crucial. Since its listing in August 2009, the stock has witnessed significant ups and downs, underscoring its high-beta nature.
The recent performance indicates the stock’s potential, having experienced a resurgence after a dip in February 2023. A significant resistance level was surpassed on August 21, underscoring the stock’s strength.
Fundamentally, Adani Power reported a strong financial performance, with an 83% year-on-year increase in consolidated profit for the quarter ended June 2023. The company’s financial indicators demonstrate growth, with consolidated EBITDA rising by 41.5% compared to the previous year.
While the power sector appears promising and Adani Power’s recent stake purchase by GQG bolsters investor confidence, experts highlight stretched valuations in the short to medium term. Therefore, potential investors are advised to approach with caution and consider earnings trends in subsequent quarters to assess the stock’s long-term potential and justify its valuation. The stock’s volatility necessitates careful consideration, as it responds swiftly to market momentum. (Disclaimer: The opinions expressed by experts are their own and do not represent the views of HINDI NEWS INDIA.)