How Tata Group companies and Tech Mahindra benefit from the European market

European stocks hit fresh 52-week highs, while US markets are managing to reverse from support areas. Asian stock markets, on the other hand, were mixed.

China has signaled a comeback in the economic recovery race as it reopens after nearly three years of a zero-coronavirus policy. The Hang Seng Index witnessed its best quarter since the fourth quarter of 2020, rising 14%.

After outperforming global peers in 2022, Indian equities are struggling to rebound to levels in line with global markets in 2023.

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Instead of discussing market views in this report, we discuss companies that could benefit from European markets as they sit at 52-week highs.

Well, there are many companies in India that export products or provide services in the European market and earn revenue in Euros.

A bullish trend in European indices implies a recovery in the European economy, which will have a positive impact on these Indian companies.

The top three companies that I think could benefit from a rebound in the European market are Tata Consultancy Services (TCS), Tech Mahindra and Tata Motors.

Considering the revenue from European countries, based on FY22 figures, TCS had 32% of its revenue from Europe, Tech Mahindra had 26% of its FY22 revenue and Tata Motors had 24% for the same period.

In addition to these three stocks, there is another sector, which I will mention in the second half of this article.

Before moving on to stock charts, let’s take a look at the charts of the European markets.

The first chart is the UK’s benchmark stock index FTSE100.

FTSE 100 Index

The index has hit a new 52-week high above 7,700 and is heading higher.

On the monthly chart, the index has broken through the downtrend line 55 months Indicates the start of a new trend.

The reason I emphasize 55 is because it is a Fibonacci number. A breakout of the trendline on the Fibonacci time period reinforces conviction in the technical setup.

After the first quarter of 2022, the index will consolidate in a narrow range between 6,600-7,600. A consolidation breakout and trendline break added momentum to the rally.

UK markets are gearing up to enter the five-figure league, and even German markets are following the bullish trend in UK indices.

German DAX

The German index DAX breached its previous high of 14,709 on the weekly chart above.

Last week’s rally was followed by this week’s breakout and bullish momentum, suggesting bulls are in control of the trend.

The index formed a higher low at the 200EMA (exponential moving average, which confirms the strength of the bullish trend).

In addition, a golden cross Visible on the daily chart.

A golden cross is a bullish signal when the 50-day moving average crosses above the 200-day moving average.

The German index confirms the bullish scenario as the weekly line breaks above resistance after reversing from the 200EMA and the daily line signals a golden cross.

Let’s turn to the third European index, the French CAC40.

CAC40 France

On the CAC40, the technical setup is very similar to the DAX’s weekly chart.

Multiple breaks from previous resistance at 6,830 after a reversal from the 200EMA (orange) and 50EMA (blue) suggest a bullish trend.

As a result, all three indices of major concern in Europe are showing a bullish scenario on the charts.

The bullish stock index signals better economic sentiment on the continent, which is a positive for India’s exporting companies.

I repeat, the three companies discussed in this article that derive their revenue from European countries are TCS (32%), Tech Mahindra (26%) and Tata Motors (24%).

Let us compare the movement of FTSE100 with TCS, Tech Mahindra and Tata Motors.

FTSE100 vs. TCS, Tech Mahindra and Tata Motors

A comparison of trends on the weekly chart above shows that these Indian stocks are positively correlated with the FTSE100 index.

The FTSE100 (blue), TCS (dark orange line), Tata Motors (green) and Tech Mahindra (light orange) are trending similarly.

While there is no 100% positive correlation between the FTSE100 and these stocks, if you look at the trend on the weekly chart above, stocks tend to follow the FTSE100 over the long term.

The movement of these three stocks may also depend on the Indian stock market, but in the long run, they tend to catch the movement of the European market.

The percentage returns may not be exactly the same, but they are about 30-35% correlated with the FTSE100.

Before moving on to the charts of IT stocks like TCS and Tech Mahindra, readers should also bear in mind that the Indian IT sector also has a higher positive correlation with the Nasdaq.

TCS daily chart

Tata Consultancy Services (TCS), an IT industry juggernaut with a 28% weight in the Nifty IT Index and 4% in the Nifty50, has the power to move Indian equities.

the stock formed spring According to Wyckoff theory, it was at a low of Rs 2,918 and was heading higher.

According to Wyckoff’s theory, spring is the lowest point of a trend, marking a bottom.

The recent low of Rs 3,100 marks the largeAST Ppoint smallSupport (LPS) indicates key areas of support according to the pattern.

The structure remains bullish until the price breaks the spring level of Rs 2,900.

Tech Mahindra Weekly Chart

The next IT stock on our list, Tech Mahindra, is consolidating between two major bands on the weekly chart.

The stock traded between 50WEMA (Wweekly Secondexponentially ricecheer A sort ofverage) at Rs 1,097 and 200WEMA at Rs 953.

The 50WEMA of the weekly chart determines the medium-term trend, and the 200WEMA is the long-term trend.

A stock trend between the two averages indicates indecision among traders and investors. A breakout and close above the 50WEMA could confirm a bullish breakout.

Investors should keep this stock on their watch list. Any breakthrough will be a time for action.

Tata Motors Weekly Chart

Tata Motors’ post-pandemic rebound has been in sync with the market, bringing the company back into the spotlight. The company has been in the spotlight lately due to the unveiling of a new electric vehicle at the 2023 Auto Expo.

It’s also popular because of the company’s upcoming IPO in the form of Tata Technologies and Tata Electronics.

Not only did the rally stall in the post-pandemic move, but it continued higher after a bullish breakout (horizontal blue trendline).

Since the last quarter of 2021, the stock has been consolidating above the breakout (blue line) with support at Rs 350-360 but has been trading at triangle technical pattern.

The triangle is an indecision pattern and it is recommended to wait and see before breaking out. The breakout levels are located at the upper limit of Rs 480 and the lower limit of Rs 340.

Interestingly, the price trend may be hovering around the 50WEMA, while the slope of the 200WEMA is moving higher, which is a sign of a bullish trend.

A breakout could be bullish given the trend move in sync with the FTSE100, but the area suggests a no-trade zone.

With the three stocks we’ve discussed here, there are probably many other companies with a presence in the European market, and their sales could grow.One division that comes to mind and exports to the European market is textile industry.

Textile companies such as KPR Mills, Himatsingka Seide, PDS International, Gokaldas Exports, Welspun, Trident, Jindal Worldwide and some other textile companies derive their business income from Europe.

If European markets get back on track, we might view these textile stocks as good investment choices.

Please note that these are not recommendations and the risks of global markets should be kept in mind before you consider investing.

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Disclaimer: This article is for informational purposes only. This is not a stock recommendation and should not be treated as such.

This article is from Equitymaster.com