Charting Technicals: Maruti Suzuki has strong support around Rs 1300-1350 levels

Maruti SuzukiBSE -2.77 % India Ltd, which declared its results for the quarter ended June 30 earlier this week, has failed to cheer investors as the stock plunged a little over 5 per cent during the past week.

Shares of Maruti Suzuki have been under pressure so far in the year 2013, weighed down by falling volumes, labor unrest, heavy discounts and high fuel prices. The stock has plunged a little over 10 per cent so far in July, as of data collected on July 26.

Both short and medium-term trends for the country's biggest carmaker are bearish and Maruti could decline further to test support from the rising channel around 1350-1370, say analysts. Maruti Suzuki is in a visible correction mode since May 2013 and has plunged nearly 18 per cent since then. Technically, it is in an intermediate corrective cycle of a larger uptrend and as things stand, it represents a 'sell on rallies' opportunity for the short-term trader.

Underlining the bearishness, successive rallies in the recent past saw huge selling and the stock has declined to sub Rs 1400 levels from the highs at 1775 in May. Technical analysts are of the view that Maruti Suzuki is likely to remain volatile at least in the near term and analysts advise investors to book profits on every rally as the stock is trading below its key support levels.

Maruti Suzuki India Ltd reported slightly lower than expected earnings for the quarter ended June 30, weighed down by a sharp rise in discount levels, though the earnings trajectory remained elevated on strong currency gains. The country's biggest carmaker posted a 49 per cent jump in the first-quarter net profit as a drop in sales volumes was offset by cheaper imports from Japan due to a decline in the value of the yen.

Analysts at ten brokerage firms have maintained their positive stance on Maruti Suzuki, but have reduced their target price largely weighed down by slowdown in demand in the domestic as well as export markets. They say that with a shift towards petrol models and higher discounts to be given on diesel models, margins are likely to witness some pressure in the coming quarters as well.

Top brokerage firms such as CLSA, JPMorgan, Nomura, HSBC, and Deutsche Bank have all slashed their 12-month target prices for Maruti Suzuki, citing demand slowdown and increasing competition. The automaker is grappling with deterioration in diesel demand as the government has increased diesel prices, thus narrowing the spread between diesel and petrol variants.

Along with falling demand, discounts are rising, the scenario which is expected to continue in FY14. Underutilization of new capacities coming up and Yen appreciation remain big concerns on the margin front.

However, with expectations of economy revival in FY 15 along with new launches from the company in the form of an SUV in FY 15 and probably a car in Q4 FY14, we believe the strength in volume will return, LKP said in a report.

MSIL remains proxy to the recovery in the auto industry. Considering the concerns mentioned above, the brokerage firm has slashed their earnings estimates by 7%/13% and target price by 19% to Rs 1,641, also by reducing the PE multiple from 15x to 14x. We have collated recommendations from various analysts on how is Maruti Suzuki likely to perform in the short to medium term:

Renu Goel - Analyst, Derivatives & Technical Research at Trend-Wise: Maruti is in a visible correction mode since May 2013 and technically it is in an intermediate corrective cycle of a larger uptrend. Underlining the bearishness, successive rallies in recent past saw selling and the stock plunged to sub 1400 levels from the highs at 1775 made in May.