Diagnostic stocks scramble for new growth in India as Covid gains halve

By Dan Neff On Feb 21, 2022

India’s listed clinical laboratories are looking for new sources of growth to fuel investor interest after seeing their massive coronavirus-fueled stock rallies more than halved in recent months.

Surging healthcare spending and demand for Covid tests led to multifold share-price gains for pathology firms globally during the pandemic. Those gains have started to fade as outbreaks ease and countries look to reopen, while concerns over higher interest rates have sparked a flight from risky investments including biotech.

The tumble in Indian lab stocks has accelerated since the start of the year after disappointing results. The nation’s longest-listed pathology company Thyrocare Technologies Ltd. posted lower revenue for the December quarter, hurt by reduced need for Covid-related tests, while larger peers Metropolis Healthcare Ltd. and Dr Lal PathLabs Ltd. missed analysts’ profit estimates.

Bloomberg

“The outlook for laboratory stocks is muted,” said Kranthi Bathini, a strategist at Mumbai-based WealthMills Securities Pvt. “The companies now need to focus on growth from non-Covid streams.”

India has managed to control the recent outbreak, while testing capacity has been expanded significantly, Bathini noted. He said the companies have looked to expand through mergers and acquisitions, announcing deals when their stocks were at peak valuations.

Metropolis and Dr Lal both announced acquisitions of smaller players last year, looking to move into new fields. API Holdings Ltd., which owns the health-care brand PharmEasy and has announced plans to go public, last year acquired a two-thirds stake in Thyrocare from its founders.

Bajaj Auto, L&T among 7 names that may help you wade through volatility

Money-making Ideas

Volatility has become a consistent theme in the current market environment. With a number of uncertain headwinds, making money has become tough but not impossible. There are several stocks that have given breakouts. Below are seven names that analysts recommend:

Bajaj Holdings| Buy| Target: Rs 5,750

The stock found support at its 20-week SMA and has recently been consolidating in a range between Rs 5,000-5,290 levels. This week, the stock broke out of this range on the back of above average volumes. This augurs well for the uptrend to continue. Technical indicators are giving positive signals as the stock trades above its key short term and intermediate term moving averages. Momentum readings like the 14-day RSI are in a rising mode and not overbought and the Relative Strength Comparative indicator too has broken out of a range. The analyst, therefore, recommends a buy on Bajaj Holdings between Rs 5,350-5,390. A stop loss is suggested at Rs 5,200, while target is at Rs 5,750.
(Subash Gangadharan, Senior Technical and Derivative Analyst, HDFC Securities)

Hitachi Energy | Buy | Target: Rs 3,500

Technical indicators are giving positive signals as the stock is trading above its 20-day and 50-day SMA. Momentum readings like the 14-day RSI too are in a rising mode and not overbought, which implies potential for further upsides. The stock closed above the mid band of the 20-day Bollinger Band, which is a sign of strength. The analyst expects the stock to move up further and take out its recent life highs in the coming sessions. Recommend a buy between Rs 3,115-3,135 levels. Keep a stop loss at Rs 2,930 for a target of Rs 3,500.

(Subash Gangadharan, Senior Technical and Derivative Analyst, HDFC Securities)

L&T| Buy| Target: Rs 2,010

After a medium-term correction, the stock took support near Rs 1,800 and reversed sharply. The stock has formed a promising reversal formation which indicates strong possibility of fresh uptrend from current levels. Currently, the stock is trading near a 50- and 20-day SMA, it is also trading near an important retracement support level. The short term texture of the chart suggests further upside from current levels. Rs 1,815 would be the immediate support level for positional traders, above which it could rally till Rs 2,010.

(Shrikant Chouhan, Head of Equity Research (Retail) at Kotak Securities)

Bajaj Auto| Buy| Target: Rs 3,890

On the daily and intraday charts, the stock consistently formed a higher bottom formation which is broadly positive. In addition, after a long time, it succeeded to close above Rs 3,600 and on weekly charts it has formed a long bullish candle which supports the short term uptrend. For trend following traders, Rs 3,505 would be the sacrosanct support level, above which Bajaj Auto will move up to Rs 3,890.

(Shrikant Chouhan, Head of Equity Research (Retail) at Kotak Securities)

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