Shriram Transport Finance: Where is the bottom?

A strong growth company having good fundamentals, Shriram Transport Finance has been reporting an increase in revenue and profits YoY.

Shriram Transport Finance Company Limited is an asset financing non-banking finance company. It is engaged in providing finance for commercial vehicles and other loans. It is a midcap company with a market cap of Rs 32,251 crore. It is a strong growth company having good fundamentals and reporting an increase in revenue and profits YoY.

The foreign investors hold the majority stake of this company, which is about 54%, while the domestic institutions hold a 15% stake. The promotors have 25% and the rest is being held by the public. The company is backed heavily by its institutional presence.

The performance of the stock hasn’t been top-notch as it has delivered a mere 13% in YTD, which is under par when compared with its peers. Its three-month and one-month performance stands negative. The major reason for such an under-performance is because it is heavily hit by the market sentiment and since the major stake is held by the FIIs, it is bound to take a hit during this FII selling spree, However, it has given good returns in the long term.

On the daily time frame, the stock had formed a head and shoulders pattern at the top before reversing. The stock made a high of 1696 on November 9 before retracing. On December 14, the stock broke the neckline on the downside and has been in a strong downtrend since then. The RSI has entered the super bearish territory while the ADX also suggests a strong downtrend. The rising volumes validate the bearishness of the stock.

The difference between the head and neckline of the head and shoulders pattern is 18%. Thus, it is expected that the stock shall also show the same action on the downside. It has plunged by 7% today and has already fallen more than 14% from its neckline. Thus, we can expect more fall of about 4% before it shows any signs of recovery. The stock is already in the oversold region, and investors willing to invest in this stock can wait for the levels of 1150 and any positive price movement can be considered a sign of reversal.