Avoid ‘Oversold’ India Developers Amid Gain: Technical Analysis

Investors should avoid getting “stuck” in Indian developers even as the property index extended the biggest advance in more than six months yesterday, according to IIFL Private Wealth Management Ltd.

The Bombay Stock Exchange Realty Index of 13 property stocks climbed 2.8 percent to 3,007.80 as of 11:12 a.m. in Mumbai, extending yesterday’s 5.7 percent advance, the most since May 10. Stocks rebounded following a decline last week as Indian authorities arrested eight executives including Ramachandran R. Nair, chief executive officer of LIC Housing Finance Ltd., amid an alleged bribery investigation.

The index is trading below its 200-day moving average of 3,415.31 for an 11th day, which IIFL said is a sign of weakness. The benchmark Bombay Stock Exchange’s Sensitive Index has been above its 200-day moving average since June 10, according to data compiled by Bloomberg, based on the technical indicator that tracks a security’s price over a period of time.

Property stocks “made lower lows than what they made the previous time the market corrected,” said Anu Jain, vice president at Mumbai-based IIFL. “That’s a sign these stocks are far weaker than the market.”

The Central Bureau of Investigation is probing whether preferential treatment was given to developers. LIC Housing Finance, the property financing arm of India’s largest insurer, is at the center of the investigation.

‘Stay Away’

The realty index dropped to its lowest in a year on Nov. 26, driving its relative strength indexes to 17.81. RSI indexes are based on share movements in the previous 14 days and readings of 30 or less indicate to some analysts that stocks are set to rise. The relative strength index climbed to 33.89 today.

“It’s a badly oversold sector so it’s just bouncing back,” Jain said. “I would stay away from the sector. It will give sharp bounces which look interesting but one can get stuck very fast.”

Within the industry, the trend lines are all broken, and the only one showing some resilience is DLF Ltd., the nation’s biggest developer, she said.

Housing Development & Infrastructure Ltd. increased 4.5 percent to 197.9 rupees. DLF advanced 2.2 percent to 313.5, while Unitech Ltd., the second-largest developer, climbed 2.1 percent. DB Realty added 5 percent.

Anjani Kumar Singh, a lawyer representing one of the arrested, has said all eight have opposed the investigating agency’s custody and will base their defense on the report filed.

IIFL has a “buy” rating on Godrej Properties Ltd. and Oberoi Realty Ltd. because they don’t have a working capital or cash flow problem, Jain said.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

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