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Small Midcap Mantra: A technical breakout suggests buying opportunity in this housing financing company

Small Midcap Mantra: A technical breakout suggests buying opportunity in this housing financing company
July 15
16:02 2021

The stock has been consolidating in 2021, but a recent breakout from the W-shaped bottoming pattern suggests a coup by the bulls could be in the offing

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Can Fin Homes has underperformed compared to Nifty in 2021 but technical charts suggest that the stock could make a comeback

Shares of Can Fin Homes, a housing finance company promoted by Canara Bank rose a little over 9 percent compared to over 13 percent gain seen in the Nifty50. On a 1-year basis, the stock rose 56 percent compared to Nifty50’s 49 percent run.

The stock has been consolidating in 2021, but a recent breakout from the W-shaped bottoming pattern suggests a coup by the bulls could be in the offing. However, this far, the stock price has failed to gain momentum. Now, it has to bounce back from the breakout level, which could take it Rs 700. This translates into an upside of 26 percent from the July 13 price of Rs 552.

Can Fin Homes is a mid-sized, niche player in the housing finance space with a market capitalisation of more than Rs 7200 crore.

The company’s strong fundamental is supported by its presence in the low-risk housing loans with the majority of the borrowers being salaried individuals (73% of the total portfolio), negligible exposure to developer loans (0.02% of the total portfolio) as well as high-ticket-size LAPs.

Presence in mass-market housing, robust demand in the affordable segment, and efforts to diversify in newer geographies should ensure healthy growth for the company over the next few years.

“Despite disruptions from Covid, asset quality performance is commendable with GNPA to remain below 1% (stood at 0.91% in Q4FY21).  The delinquency pool for the company is significantly lower compared to the industry in both HL and LAP,” Ashish Chaturmohta, Director Research, Sanctum Wealth Management, said.

Can Fin Homes 14 July

The company also has a strong liability franchise with significantly lower dependence on market borrowings without any compromise on costs.  Its AA+ rating and Canara Bank parentage makes it easier to raise funds at competitive rate.“Technically, the stock has formed a major W-shaped bottoming pattern on the weekly chart. Post breakout in early April, the stock hit high of Rs 620 and then corrected back to the breakout level,” he added.

“Over last 10 weeks, the stock has seen the consolidation of its gains above breakout level to triangle pattern. Now it is showing signs of breakout with strong up move in yesterday’s session with high volumes,” explains Chaturmohta.

He further added that the Relative Strength Index (RSI) has given a positive crossover with its average on the weekly chart suggesting the correction phase is over. The stock can be bought at current levels and on dips to Rs 530 with a stop loss of Rs 500 for the target of Rs 700 over the next 6 to 9-month period.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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