Pharma stocks poised for a bounceback; 3 bets for over 20% returns

Monarch Networth Capital

The Nifty Pharma index had made a double bottom formation at around 8,300 and bounced back sharply from that level. From this low, it bounced back to 10,780, returning 30 percent in just 4 months. But since September, it has corrected to 61 percent retracement.

The index seems to be bouncing back from the demand zone and last week, it closed with a hammer on the chart. This week, any tick above 9,350 will trigger fresh buying in pharma stocks.

Cipla: CMP Rs 540 (Upside: 24 percent)

Cipla has been trading in the upward rising channel for the last two and a half years, where it has bounced back multiple times from the lower channel. However, thereafter, it surrenders the gain from the higher end of the channel.

Last week, the stock bounced back sharply from the lower end of the channel again with bullish engulfing candle on the weekly chart. Going ahead, it can bounce back till Rs 600-670 levels in coming months. It will be invalidated if it closes below Rs 500.

Dr Reddy's Labs: CMP Rs 2,722 (Upside: 21 percent)

It made double bottom formation around Rs 1,900 and bounced back till Rs 2,600. It has faced resistance at Rs 2,600 multiple times in the past few weeks. The stock has fallen multiple times from this level but at lower levels, there has been a buying interest as well.

Last week, it has finally closed above this resistance area and we can expect a continuation of upward momentum in the coming months. It is a buying opportunity now and traders can also add on dips till Rs 2,500. On the upside, it can go till Rs 3,000-3,300. It will be invalidated if it closes below Rs 2,300.

Aurobindo Pharma: CMP Rs 810 (Upside: 22 percent)

While other pharma stocks have been in either correction or consolidation phase, Aurobindo pharma has been outperforming them and making higher tops and higher bottoms formation on the daily chart.

It has found buying interest at every lower level. It has made Cup and Handle pattern formation on the daily chart. A close above Rs 830 will give confirmation to this pattern formation.

Traders should buy on the close above Rs 830 for the upside targets of Rs 900-1,020. After the confirmation on the breakout if it closes below Rs 760 then it will be invalidated.

Disclosure: Analyst does not have any direct or indirect financial interest nor any other material conflict of interest at the time of stock recommendation in the subject company. He does not have actual/beneficial ownership of one percent or more securities of the subject company. He does not own any stocks however his relatives might own a few of the stocks in their portfolio.