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How Tata Group Firms And Tech Mahindra Stand To Benefit From EuropeEuropean share markets have hit new 52-week highs, while US markets are managing to reverse from the support area. Asian share markets on the other hand are trending mixed.
China, opening after nearly 3-years with its zero covid policy, has signaled its comeback in the economic revival race. The Hang Seng index has witnessed the best quarter after Q42020 with gains of 14%.
Indian share markets, after outperforming global peers in 2022, are struggling to rally higher, in sync with global markets in 2023.
If you haven't seen my video on “Markets kya lagta hai?”, which focuses on global market trends, watch it here: Market Kya Lagta hai? Sunday Brunch with the Stock Market.
We are not discussing the market view in this note but the companies which can benefit from the European markets as they are trending at a 52-week high.
Well, there are a number of companies in India which exports their products or offer services in the European markets and earn income in euros.
The bullish trend in the European indices means a revival in the European economy which will have a positive impact on these Indian companies.
The three large-cap companies which I believe can benefit from the rally in the European market are Tata Consultancy Services (TCS), Tech Mahindra, and Tata Motors.
Considering revenue from the European countries, TCS has 32% revenue from Europe as per FY22 numbers, Tech Mahindra has 26% as per FY22, and Tata Motors has 24% for the same period.
Along with these three stocks, there is one sector as well which I'll be mentioning in the latter half of the piece.
Before moving on to the stock charts, let's go through the charts of European markets.
The first chart is FTSE100, the benchmark equity index of the United Kingdom.
FTSE100 UK
The index has hit the new 52 week high above 7,700 and is heading higher.
On the monthly chart, the index has broken out of the falling trendline after 55 months indicating the beginning of a new trend.
The reason I'm emphasizing on 55 is because it is a Fibonacci number. The trendline breakout with the Fibonacci time cycle, strengthens the conviction on the technical setup.
Post the first quarter of 2022, the index has consolidated in a narrow range between 6,600-7,600. The consolidation breakout along with the trendline breakout adds fuel to the rally.
The UK market is getting ready to enter the five-digit league and even German market is following the bullish trend from the UK index.
DAX Germany
DAX, the German index, broke out of the previous high of 14,709 on the weekly chart above.
Last week's rally followed by a breakout and bullish momentum this week indicates the bulls are in control of the trend.
The index has formed a higher low at the 200EMA (Exponential Moving Average which confirms the strength in the bullish trend.
Additionally, a golden cross is visible on the daily chart.
The golden cross is the bullish signal when the 50-day moving average crosses above the 200-day moving average.
With the weekly breaking out above the resistance zone after reversing from 200EMA and the daily signaling a golden cross, the bullish scenario is confirmed on the German index.
Let's move to the third European index, CAC40 of France.
CAC40 France
On the CAC40, the technical setup is very similar to the weekly chart of the DAX.
The multiple breakouts from the previous resistance of 6,830 after reversing from the 200EMA (orange) and 50EMA (blue) indicate the trend is bullish.
So, all three indices which are largely followed in Europe signal the bullish scenario on the charts.
The bullish equity indices means the better economic sentiment in the continent, and it is positive for the exporting companies from India.
I repeat, the revenue from the European countries for the three companies discussed in this note are TCS (32%), Tech Mahindra (26%), and Tata Motors (24%).
Let us compare the trend of FTSE100 with TCS, Tech Mahindra, and Tata Motors.
FTSE100 vs TCS, Tech Mahindra, and Tata Motors
The trend comparison on the weekly line chart above indicates these Indian stocks have a positive co-relation with FTSE100.
The FTSE100 (blue), TCS (dark orange line), Tata Motors (green), and Tech Mahindra (light orange) are trending in a similar direction.
Though there isn't a 100% positive correlation between the FTSE100 and these stocks, if you look at the trend on the weekly chart above, the stocks tends to follow the FTSE100 in long run.
The trend of these three stocks may depend on Indian share markets too but in the long run, they tend to catch the trend of the European markets.
The percentage returns may not exactly be the same, but they have approximately 30-35% correlation with the FTSE100.
Before moving on to discuss the chart of a couple of IT stocks like TCS and Tech Mahindra, readers should also keep in mind that the Indian IT sector has a higher positive correlation with the Nasdaq too.
TCS Daily Chart
Tata Consultancy Services (TCS), the giant in the IT pack with the weight of 28% in the Nifty IT Index and 4% weight in the Nifty50, has the ability to drive the Indian share markets.
The stock has formed the spring as per the Wyckoff theory at the low of Rs 2,918 and is headed higher.
As per the Wyckoff theory, the spring is the lowest point in the trend, and it marks the bottom.
The recent low at Rs 3,100 marks the Last Point of Support (LPS) indicating the key support area as per the pattern.
The structure remains bullish till the price doesn't breach the spring level of Rs 2,900.
Tech Mahindra Weekly Chart
Tech Mahindra, the next IT stock in our list is consolidating between the two major bands on a weekly chart.
After the fall from its all-time high of Rs 1,769, the stock is trending between the 50WEMA (Weekly Exponential Moving Average) placed at Rs 1,097 and the 200WEMA which is placed at Rs 953.
The 50WEMA on the weekly chart decides the medium-term trend while the 200WEMA is a long-term trend.
The stock trending between the two averages signals indecision of traders and investors. The break and close above the 50WEMA may confirm the bullish breakout.
Investors should keep this stock on their watchlist. Any breakout will be the time to act on it.
Tata Motors Weekly Chart
Tata Motors' rally post-pandemic, in sync with markets, brought back the company in focus. The company is in focus these days owing to its new electric vehicle car launches at the Auto Expo 2023.
It's also buzzing because the company has IPOs coming up in the form of Tata Technologies and Tata Electronics.
Not only did the rally halt at the post-pandemic move but it continued to head higher after the bullish breakout (horizontal blue trendline).
Since the last quarter of 2021, the stock is consolidating above the breakout (blue line) with support at Rs 350-360, but it has been consolidating in the form of a triangle technical pattern.
The triangle is an indecisive pattern and suggests the wait and watch approach ahead of the breakout. The breakout level is placed at Rs 480 on the upper band and Rs 340 on the lower band.
Interestingly, the prices are trending around or hovering around 50WEMA while the slope of 200WEMA is heading higher, a sign of the bullish trend.
Considering the trending move in sync with FTSE100, the breakout is likely on the bullish side, but this zone suggests a no-trading zone.
With these three stocks we discussed here, there may be many other companies that have business exposure to the European markets and probably they may witness an uptick in their sales. One sector which comes to my mind and exports to the European market is the textile sector.
Textile companies like KPR Mills, Himatsingka Seide, PDS International, Gokaldas Exports, Welspun, Trident, Jindal Worldwide, and a few other textile stocks have business revenues from Europe.
If the European market comes back on track, we may see these textile stocks as good investment picks.
Please note, these are not recommendations, and the risk of global markets should be kept in mind before you consider investing in them.
I'll share more on his trend on my Telegram group. If you're interested in being part of my charting journey as I share how to create wealth from profitable trade setups, join my telegram channel – Fast Profits Daily.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
China, opening after nearly 3-years with its zero covid policy, has signaled its comeback in the economic revival race. The Hang Seng index has witnessed the best quarter after Q42020 with gains of 14%.
Indian share markets, after outperforming global peers in 2022, are struggling to rally higher, in sync with global markets in 2023.
If you haven't seen my video on “Markets kya lagta hai?”, which focuses on global market trends, watch it here: Market Kya Lagta hai? Sunday Brunch with the Stock Market.
We are not discussing the market view in this note but the companies which can benefit from the European markets as they are trending at a 52-week high.
Well, there are a number of companies in India which exports their products or offer services in the European markets and earn income in euros.
The bullish trend in the European indices means a revival in the European economy which will have a positive impact on these Indian companies.
The three large-cap companies which I believe can benefit from the rally in the European market are Tata Consultancy Services (TCS), Tech Mahindra, and Tata Motors.
Considering revenue from the European countries, TCS has 32% revenue from Europe as per FY22 numbers, Tech Mahindra has 26% as per FY22, and Tata Motors has 24% for the same period.
Along with these three stocks, there is one sector as well which I'll be mentioning in the latter half of the piece.
Before moving on to the stock charts, let's go through the charts of European markets.
The first chart is FTSE100, the benchmark equity index of the United Kingdom.
FTSE100 UK
The index has hit the new 52 week high above 7,700 and is heading higher.
On the monthly chart, the index has broken out of the falling trendline after 55 months indicating the beginning of a new trend.
The reason I'm emphasizing on 55 is because it is a Fibonacci number. The trendline breakout with the Fibonacci time cycle, strengthens the conviction on the technical setup.
Post the first quarter of 2022, the index has consolidated in a narrow range between 6,600-7,600. The consolidation breakout along with the trendline breakout adds fuel to the rally.
The UK market is getting ready to enter the five-digit league and even German market is following the bullish trend from the UK index.
DAX Germany
DAX, the German index, broke out of the previous high of 14,709 on the weekly chart above.
Last week's rally followed by a breakout and bullish momentum this week indicates the bulls are in control of the trend.
The index has formed a higher low at the 200EMA (Exponential Moving Average which confirms the strength in the bullish trend.
Additionally, a golden cross is visible on the daily chart.
The golden cross is the bullish signal when the 50-day moving average crosses above the 200-day moving average.
With the weekly breaking out above the resistance zone after reversing from 200EMA and the daily signaling a golden cross, the bullish scenario is confirmed on the German index.
Let's move to the third European index, CAC40 of France.
CAC40 France
On the CAC40, the technical setup is very similar to the weekly chart of the DAX.
The multiple breakouts from the previous resistance of 6,830 after reversing from the 200EMA (orange) and 50EMA (blue) indicate the trend is bullish.
So, all three indices which are largely followed in Europe signal the bullish scenario on the charts.
The bullish equity indices means the better economic sentiment in the continent, and it is positive for the exporting companies from India.
I repeat, the revenue from the European countries for the three companies discussed in this note are TCS (32%), Tech Mahindra (26%), and Tata Motors (24%).
Let us compare the trend of FTSE100 with TCS, Tech Mahindra, and Tata Motors.
FTSE100 vs TCS, Tech Mahindra, and Tata Motors
The trend comparison on the weekly line chart above indicates these Indian stocks have a positive co-relation with FTSE100.
The FTSE100 (blue), TCS (dark orange line), Tata Motors (green), and Tech Mahindra (light orange) are trending in a similar direction.
Though there isn't a 100% positive correlation between the FTSE100 and these stocks, if you look at the trend on the weekly chart above, the stocks tends to follow the FTSE100 in long run.
The trend of these three stocks may depend on Indian share markets too but in the long run, they tend to catch the trend of the European markets.
The percentage returns may not exactly be the same, but they have approximately 30-35% correlation with the FTSE100.
Before moving on to discuss the chart of a couple of IT stocks like TCS and Tech Mahindra, readers should also keep in mind that the Indian IT sector has a higher positive correlation with the Nasdaq too.
TCS Daily Chart
Tata Consultancy Services (TCS), the giant in the IT pack with the weight of 28% in the Nifty IT Index and 4% weight in the Nifty50, has the ability to drive the Indian share markets.
The stock has formed the spring as per the Wyckoff theory at the low of Rs 2,918 and is headed higher.
As per the Wyckoff theory, the spring is the lowest point in the trend, and it marks the bottom.
The recent low at Rs 3,100 marks the Last Point of Support (LPS) indicating the key support area as per the pattern.
The structure remains bullish till the price doesn't breach the spring level of Rs 2,900.
Tech Mahindra Weekly Chart
Tech Mahindra, the next IT stock in our list is consolidating between the two major bands on a weekly chart.
After the fall from its all-time high of Rs 1,769, the stock is trending between the 50WEMA (Weekly Exponential Moving Average) placed at Rs 1,097 and the 200WEMA which is placed at Rs 953.
The 50WEMA on the weekly chart decides the medium-term trend while the 200WEMA is a long-term trend.
The stock trending between the two averages signals indecision of traders and investors. The break and close above the 50WEMA may confirm the bullish breakout.
Investors should keep this stock on their watchlist. Any breakout will be the time to act on it.
Tata Motors Weekly Chart
Tata Motors' rally post-pandemic, in sync with markets, brought back the company in focus. The company is in focus these days owing to its new electric vehicle car launches at the Auto Expo 2023.
It's also buzzing because the company has IPOs coming up in the form of Tata Technologies and Tata Electronics.
Not only did the rally halt at the post-pandemic move but it continued to head higher after the bullish breakout (horizontal blue trendline).
Since the last quarter of 2021, the stock is consolidating above the breakout (blue line) with support at Rs 350-360, but it has been consolidating in the form of a triangle technical pattern.
The triangle is an indecisive pattern and suggests the wait and watch approach ahead of the breakout. The breakout level is placed at Rs 480 on the upper band and Rs 340 on the lower band.
Interestingly, the prices are trending around or hovering around 50WEMA while the slope of 200WEMA is heading higher, a sign of the bullish trend.
Considering the trending move in sync with FTSE100, the breakout is likely on the bullish side, but this zone suggests a no-trading zone.
With these three stocks we discussed here, there may be many other companies that have business exposure to the European markets and probably they may witness an uptick in their sales. One sector which comes to my mind and exports to the European market is the textile sector.
Textile companies like KPR Mills, Himatsingka Seide, PDS International, Gokaldas Exports, Welspun, Trident, Jindal Worldwide, and a few other textile stocks have business revenues from Europe.
If the European market comes back on track, we may see these textile stocks as good investment picks.
Please note, these are not recommendations, and the risk of global markets should be kept in mind before you consider investing in them.
I'll share more on his trend on my Telegram group. If you're interested in being part of my charting journey as I share how to create wealth from profitable trade setups, join my telegram channel – Fast Profits Daily.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com