The Chart-Commentary Mismatch On Maruti Suzuki
Everyone knows that Maruti Suzuki India Ltd. is the big daddy of the car market, 50%-plus market share and all that. It is also an institutional favourite. Prices have moved all over in the last couple of years but funds-holding has remained steady at around 30% (22% domestic institutional investors and 7% foreign portfolio investors). So it is evident that they are playing the very long-term story in the stock. The lay investor too has nothing but a positive view on Maruti and it is only traders who keep shifting back and forth on their positions.
The long-term chart picture, though, is not really reflecting this overall positive sentiment towards the stock. I got prompted to take a look after last week’s report from CSLA downgrading the stock to a Sell. You don’t often get to see that in a large-cap, particularly one of the stature of Maruti. So, a chart check.
The monthly chart shows an end of an Impulse move in 2017 high at 9,996. Since then a corrective wave is in progress. The first correction drops to 4,000, hitting 62% retracement perfectly by March 2020. The strong run in the market since then saw prices rally but it continued to show corrective characteristics.
So, it seems that Maruti is going in for a complex, multi-leg corrective pattern.
The prices, having dropped to 62% of the rise already, suggest that the worst of the price decline is over and hence only the time correction part is left. The stock has also retraced to 62% of the fall. So far, everything is moving in perfect Fibonacci relations. Multiple price-high pivots in the 7,750-7,900 area suggest that sellers are active in that band over a three-year period. So that is not an easy level to exceed. It was tested as recently as November 2021 and still managed to hold off the rally attempt.
Using time counts, we can estimate how far out the correction may last.
Now that is a long time to be in a corrective move without seeing returns. I have arrived at these time counts using Fibonacci-related numbers and their divisions. There is yet another possible time count coming up in July 2023.
The upshot here is that all-time counts are quite far away from current levels. Hence even remaining invested in the stock needs to be questioned by the normal investor, whose funds are always limited. Such funds are better deployed elsewhere to fetch some returns in the same period.
Given that price fall may have been covered at the 2020 low (4,000), there is however nothing to suggest that a revisit to those levels or nearby may not occur. A higher bottom pattern completion, for example, can occur around 5,650, for yet another 62% pullback of the 2020-21 rally advance. Now that is still a decent 25% downside from where we are today. Not to mention that we expect prices to remain down for 6-18 months or so at the minimum.
Hence, the following action may be considered:
Exit the long position and wait for a price and time match in the future to get back in.
If wanting to hold, use a covered write strategy (i.e. selling higher Call options against your position) for the next 6-12 months at least.
Do nothing and suffer through the decline and wit for revival later.
It is evident that funds are not interested to sell. But the CLSA research report says that Maruti will continue to lose market share in some segments. Dominant market share has been one of the main planks for investing in Maruti. But with competition hotting up in every area and no announcement regarding any move towards electric variants and a struggle to get into the SUV segment (maximum sales in the market are SUVs currently), it seems that charts are clearly indicating souring sentiments towards the auto giant. If there is anything adverse that prompts institutions to begin lightening up, then price damage could be even greater, forcing the prices towards former swing lows near 4,000.
CK Narayan is an expert in technical analysis; founder of Growth Avenues, Chartadvise and NeoTrader; and chief investment officer of Plus Delta Portfolios. The author does not hold a position in this stock.
The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.