Sun Pharma down nearly 40% since Oct, but experts say don't mistake it as a ‘contra buy’

Sun Pharma has had a roller-coster ride for past some time. The stock fell about 14% during January 17-18, and nearly 40 percent since October.

High valuations, corporate governance issues as well as product recall in the US have posed as headwinds for the company. The pharma major hit a fresh 52-week low on Friday and chances are that it may even slide further.

December quarter data suggests that the value of Sun Pharma holding with fund managers declined by nearly 20 percent, Morningstar India data showed.

The recent issue which led to a sudden fall in Sun Pharma stock price was a Moneylife report alleging fresh whistle-blower compliant made to market regulator, Securities Exchange Board of India (SEBI).

Also, a recent report suggested that Sun Pharmaceutical Industries is voluntarily recalling 13,918 cartons and 1,39,180 vials of Vecuronium Bromide for injection, used as part of general anesthesia, due to the presence of a particulate unwanted matter.

The stock has corrected from Rs 634 on October 1, 2018 to Rs 390.75 on January 18, 2019. It has been in a downtrend for some time now without any meaningful recovery. But, does this fall make it a ‘contra buy’?

Well, most technical experts feel that it is better to avoid catching the falling knife at current levels as the stock is in continuation of a downtrend and technically, there is no evidence of near-term bottom formation.

Historical price behaviour of Sun Pharma is suggesting that it had the worst phase during the year 2000 when it topped out at Rs 25 only to hit a bottom at Rs 7 with a deep cut of 72 percent. Time-wise it took 13 quarters to consolidate and initiate a fresh bull run.

“The current phase is pretty much looking similar to what it did way back in the year 2000. Right now, this counter is in a strong bear grip after hitting a major top around 1200 in April 2015,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Since 2018 this counter appears to have resumed its down move from the highs of 678 as it breached the critical support of 435 recently and Friday’s price damage registered a new swing low of 375. Hence, around these levels there doesn’t look like any contra buying opportunity unless it swiftly recovers and stabilises above 435, as it breached all critical supports and heading lower,” he said.

Mohammad further added that if 375 is breached, we will not be surprised to see this stock heading to much lower levels with a target of Rs 316. For the time-being, it looks prudent to avoid this stock.

The stock is clearly in a downtrend. It closed 6.9 percent lower in October, followed by 15 percent cut in November, another 12 percent fall in December, and so far in the month of January 2019, the stock is down by about 7 percent.

The index is finding selling pressure at higher levels. Last month, it consolidated at its long-term support zone in the range of Rs 400–420 and witnessed a modest recovery. However, the said recovery was short-lived as in the last two sessions we have seen a sharp plunge on downside breaking the mention support zone with ease.

"The stock is now in continuation of a downtrend and technically there is no evidence of near term bottom formation in the stock. As far as levels are concerned, previous support zone in range of Rs 400–420 can now act as a hurdle on any bounce back,” Rajesh Bhosle, Technical Analyst, Angel Broking told Moneycontrol.

“We generally say ‘avoid catching the falling Knife’; we would recommend investors avoiding hunting for the bottom in this stock and instead, any bounce should be used to exit long positions. Investors can instead focus on outperforming stocks within the space, like Biocon, Divi’s Laboratories, which may provide better returns in the near-term,” he said.