Hindustan Unilever presented its quarterly earnings scorecard just before market close today. The stock closed on a weak note and in this context the above question above assumes significance. While I am not a fundamental expert to address that question, let us look at how the stock and the Nifty FMCG index have performed recently. The purpose behind this post is try and glean information that these charts broadcast and come to some logical conclusion based on the findings. So, shall we get started?
The above chart captures the performance of a few sectoral index in relation to the Nifty 50. While the Nifty Metal Index is right at the top and it is no surprise as the likes of Tata Steel, Hindalco, Vedanta and JSW Steel have logged stupendous gains since Budget-lows.
On the contrary, the Nifty FMCG index (represented by the purple line) has been a relative under-performer versus the Nifty 50 since February 29 lows. So there is basically no reason to be excited about this sector or the underlying stocks as they have not done anything spectacular versus the benchmark.
Let’s see how the Hindustan Unilever Stock has fared versus the Nifty 50. Presented below is the relative performance of the stock in relation to the Nifty 50, presented in the 3-Line Break chart format. This chart is sort of similar to Point & Figure Chart in that it tries to eliminate noise. I have used the TradePoint software developed by www.Definedge.com to plot this chart.
Note how the chart has been in a downtrend since late-February when the stock broke below its prior swing low, heralding a phase of under-performance. After a brief recovery in the recent weeks, there is a sharp fall today, suggesting that the recent recovery is probably over.
Unless there is a move past the recent highs in this chart, there is no reason to be bullish on Hindustan Unilever. Why do I say that? A move past the recent high would mean that the Hindustan Unilever has started outperforming the Nifty and it makes sense to look at the Hindustan Unilever price chart for fresh buy signals.
Until that happens, there is little reason to focus our time and energy on this stock.
Let’s take a quick look at the price chart of Hindustan Unilever. The stock seems to be in a trading range and in Wyckoff terms, we need to wait and watch if this turns out to be Re-Accumulation phase or a distribution phase. Check the chart of Maruti Suzuki for an example of what Distribution means and at HDFC Bank or Mahindra & Mahindra for what a probable Re-Accumulation phase would look like.
Either which way, if our hypothesis of a trading range is correct, then the stock is likely to be stuck in this range for a while before the next trending move happens. The high of the range at Rs.981 and the low at 769-ish would be the broad markers to pay attention to. A breach of either of these levels is when I would get interested in taking a trading / investment position in the stock.
Should I Hold or Sell Hindustan Unilever?
The purpose of this post is not to address the above question. And, I am also not keen to address this question in this forum as I am not a SEBI-Registered Analyst. The idea behind this post is to draw attention to relative performance charts and how they can be helpful in identifying right stocks and sectors.
PS: If you do not have facility to plot a 3-line break chart of Hindustan Unilever Vs Nifty 50, then just plot it as a plan line chart in your software. A move above the recent high in that chart would indicate that Hindustan Unilever is relatively strong and outperforming the Nifty 50. To read more about 3-line break chart, head to www.stockcharts.com