Once again the prospects of pharma stocks may brighten if the coronavirus pandemic situation worsens after the new Omicron variant has been detected in South Africa and elsewhere. In the mean time after today's tad gains on the indexes post brutal sell-off witnessed on Friday (November 26, 2021), ICICI Direct suggests to buy 2 pharma scrips for short term of 3 months.
Here is in detail about the 2 scrips along with the brokerage's rationale for a 'Buy':
1. Biocon: Buy Biocon for 3 months for a target of Rs. 425
ICICI Direct suggest to 'Buy' Biocon for a price target of Rs. 425 per share for a 3 month investment horizon. The stop loss recommended is Rs. 327. This implies potential investors into the scrip of Biocon considering the last traded price of Rs. 364.4 apiece can earn returns of 16.76 percent.
Note the brokerage has listed Biocon as its Quant pick and recommends the buy in the scrip of Biocon in the price range of Rs. 360-368.
Brokerage's take on the pharma sector
The pharma space has witnessed healthy consolidation in the last couple of weeks amid a broader market movement. "We believe the sector is set to resume its next round of upside move", says the brokerage.
View on Biocon scrip as put by ICICI Direct
The open interest in Biocon is continuously declining. We believe the stock should resume its upward momentum in the near term on the back of continued short covering.
The open interest in Biocon has been declining gradually in the last couple of months. The current open interest in the stock is one of the lowest in the current calendar year and the stock has been trading with a positive bias. We believe short positions are getting closed and continued short covering is expected, which should prompt further up move in the stock.
On the options front, the stock has the highest Call option base at the 370 strike. As the stock is trading near this levels, closure of positions is evident at ATM strikes and positions are moving at higher OTM strike. We expect continued upsides in the stock in the coming sessions.
"After its quarterly results the stock of Biocon has performed relatively well compared to most pharma stocks and declines were used to accumulate further. Significant delivery based buying was observed in the stock in the range of Rs. 350-360 in the November series. We expect these levels to act as major support for the stock in coming weeks the coming weeks.
Biocon has been consolidating below its long term mean levels for almost a year. Also, considering ongoing delivery based activity, we believe it may surpass its mean levels currently near Rs.375. In such a scenario, stock movement towards its mean+1*sigma levels is expected in the coming weeks", adds the brokerage.
2. Cipla: Buy Cipla for a target price of Rs. 1060
As its Gladiator stock pick, the brokerage house has advised to buy the scrip of Cipla in the price range of Rs. 935-950. The target price set out for the stock is Rs. 1060, implying an upside of 11.58 percent from the scrip's last traded price of Rs. 965. Stop loss suggested for the investment is Rs. 888. Remember duration for the buy in the scrip is again 3 months.
On the pharma index, the brokerage firm said that the index took a breather over the last 3 months after having shown outperformance during CY 2020-21.
Cipla showed resilience wherein it consolidated in a broader range (Rs. 1000-870) while sustaining above 200 day's EMA. Currently, it staged strong buying demand from the lower band of consolidation. Hence, it offers a fresh entry opportunity with favourable risk reward.
Key observation on Cipla
"The stock has shown faster retracement on the smaller degree chart as it retraced past six week's consolidation in just a single week highlighting robust price structure that augurs well for the next leg of up move. We expect the stock to resolve higher and gradually head towards our target of Rs. 1060 in the coming month as it is the 138.2% external retracement September-November decline (Rs.1005-883). On the oscillator front, weekly RSI has generated a buy signal moving above its nine period's average, indicating positive bias", adds the brokerage.
The stocks listed are taken from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.