ICICI Direct’s stock filtration method signals ‘buy’ call for these two stocks, 20% upside seen

ICICI Direct has narrowed its search for attractive buying opportunities to 162 stocks in the F&O universe. (Image: REUTERS)

Domestic benchmark indices have scaled fresh highs repeatedly in the last few trading session but broader markets have corrected. Going stock specific in the hunt for returns, domestic brokerage and research frim ICICI Direct has filtered two stocks that could hand investors nearly 20% returns in the next three months. The brokerage firm has filtered stocks using its three-factor stock filtration model, selecting scrips based on pickup in delivery, historic volatility and historic stock buying patterns out of the Futures & Options universe. 

ICICI Direct has narrowed its search for attractive buying opportunities to 162 stocks in the F&O universe. The brokerage firm has compared the two-week delivery pick-up of these stocks to the last three months delivery pattern. Then the delivery Z-score is compared, a higher Z-score indicates a higher increase in delivery per unit of risk. The stocks filtered are furthered filtered to check for historic volatility. “If the standard deviation comes lower, it suggests the lower pattern of historical volatility, which, in a way, suggests the accumulation in the stock,” ICICI Direct said. “Thus, combining with delivery Z-score, frequency distribution of the stock returns and historical volatility pattern, we can filter stocks that can be given from a positional perspective and can be outperformers,” they added.

Tata Motors

Buying range: Rs 295-303

Target: Rs 360 | Stop loss: Rs 268

While the auto sector has remained range-bound, Tata Motors has managed to outperform peers, according to ICICI Direct. “The price distribution is also suggesting limited downside movement in the stock. The majority of the reading for the stock is in the 0-2% range,” they added.

The brokerage firm said that from a delivery perspective, the stock saw strong delivery based action recently. “After significant correction from Rs 360 levels, fresh delivery buying was evident at support zone of Rs 280-300. It seems like there is ongoing accumulation in the stock at these levels,” the report said. On the volatility front, the 60 Day volatility for the stock has tested the 30-day volatility levels suggesting stability in the stock and limited downsides. Analysts believe the stock may continue surging higher with momentum likely to be seen in the coming weeks. The brokerage firm has given a three-month time frame for the trade that could give 19% upside from current levels.

Indian Oil Corporation

Buying range: Rs 104-106

Target: Rs 125 | Stop loss: Rs 94

Indian Oil has underperformed since the first half of June, falling 10% to date. However, ICICI Direct highlighted that the stocks witnessed a pull-back from its support zone recently. “The stock has been exhibiting significant accumulation in its price distribution pattern. The daily returns are largely distributed from 0% to 1%,” they added.

From a delivery perspective, analysts said that the stock has seen below-average delivery as the stock was consolidating at the support zone. “However, the Z score has started moving up, indicating increased delivery volume along with recent pullback suggesting strong hands are accumulating the stock,” the report said. On the volatility front, the 30-day volatility has been low and the 60-day volatility was also cooling down. “With 60-day volatility cooling-off further, we believe momentum may be seen in the stock and it may move higher in coming weeks.” The stock could give 20% upside return from current levels. The trade has a three-month time frame.