Tata Chemicals skyrockets

Tata Chemicals gave an enormous 87 percent yearly growth in consolidated profit at Rs 641 crore in spite of significantly higher freight and forwarding charges as well as power and fuel cost.

Tata Chemicals saw a sharp rise in operating profit margins and earnings have grown through high prices and soda ash realizations.

The derivates segment had Tata Chemicals on the top with the highest Open Interest gainers on August 10 because the stock rose more than 13 percent backed by strong earnings results of the first quarter. The stock price closed at Rs 1074 which was up by 12.2 percent by the end of the day.

The revenue from operations for the first quarter were Rs 3995 crore which have risen by 34 percent in comparison with the same quarter in the last year.

“The operating performance reflects improved realisations, efficient cost management and optimum capacity utilisation in challenging market conditions, and in the context of rising input and energy costs,” Tata Chemicals said in its BSE filing.

The strong soda ash market and expensive prices have aided Tata Chemicals overcome the cost pressures and in turn promote its profitability. Consolidated profit margins have soared by five points to 25 percent in the first quarter. The management expects to carry the performance in the coming quarters. This positivity is driven mainly by the tight soda ash market and favourable demands. Sustainability trends such as solar glass, lithium carbonate and the shift to glass containers are opening higher demands for soda ash. The needs for traditional industries such as detergents have normalised.  However, soda ash prices cannot rise perennially.

Tata Chemicals Daily Candlestick Chart on Sharekhan’s Trade Tiger

The price of Tata Chemicals has entered its distribution zone near its lifetime high of Rs 1158. The price has faced heavy resistance above Rs 1000 and generally there seems to be major profit booking events whenever the price enters this zone. As we can see the MFI value on 11th August 2022 is nearing 99. This is evident that the stock is remarkably overbought and the operators will definitely dump their assets of Tata Chemicals. The ADX value is at 42 on 11th August 2022. The probability of trend reversal is high when the ADX value is above 40. The stock price has been in a mild uptrend since the month of July and we might see the uptrend reversing soon. We can also observe a very high open interest on the call option of TATACHEM 25-Aug-2022 CE 1100. Hence the operator presence is very strong and the price may not rise above Rs 1100.

A major gap up has been created on 10th August 2022. Observations on gaps have shown us that the price returns to the closing price of the day before the gap was created. In this case, the price of Rs 957 on 8th August 2022 is the target of the gap filling.

Therefore, the time is good for booking profit of the holdings in this stock and to initiate short trades based upon the above analysis.

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