Shares of Sun Pharma Advanced Research Company (SPARC) surged nearly 10% on Tuesday amid a strong broader market rally. The stock was trading at Rs 338.30, up 9.96% from its previous close.
What’s Behind the Sharp Rally?
The rally in SPARC comes on the back of a strong broader market rebound, with the Sensex rising over 300 points in morning trade. The Nifty Pharma index was also trading over 1% higher.
SPARC has been on an uptrend over the past week, rising nearly 18% in just 5 trading sessions. This indicates strong investor interest and momentum in the stock.
Technical Indicators Remain Positive
Technically, SPARC has given a breakout above Rs 330 levels, which is a positive sign. The stock had been consolidating in the range of Rs 300-330 over the past few weeks before this upmove.
The relative strength index (RSI) on the daily charts is at 65, which suggests potential for more upside. The moving averages are also positively placed, with the stock trading well above the 20-day, 50-day and 200-day moving averages.
Financial Performance Disappoints
However, SPARC’s latest quarterly results have been disappointing, which raises questions over the sustainability of this rally.
The company reported a net loss of Rs 86.42 crore for the September 2023 quarter, as R&D expenses remained high. This represents a widening of losses from Rs 58 crore loss in the same quarter last year.
Revenues also declined both on yearly as well as sequential basis to Rs 13 crore.
What Analysts are Saying
There is only one analyst covering the SPARC stock at the moment, according to the provided details. This lone analyst has a ‘strong buy’ rating on the stock, indicating optimism over the long-term growth potential.
However, the low analyst coverage also suggests that the stock remains under the radar for most institutional investors and brokerage firms at the moment. More coverage is needed to generate greater investor interest.
Ownership Structure: Implications
Promoters have a 65.67% stake in SPARC, while public shareholding stands at 34.33%. The high promoter holding gives confidence about their commitment to the company.
However, mutual fund ownership has declined over the past quarter to just 0.24%. On the flipside, FII ownership rose to 3.67%. The diverging trends between DIIs and FIIs creates uncertainty over direction of institutional flows going forward.
Key Takeaways: What Should Investors Do?
- SPARC’s financial performance and fundamentals remain weak, even as technical factors and broader market strength are driving the rally. Investors should be cautious while chasing the momentum.
- The stock offers high risk-reward ratio at current levels. Investors should wait for more evidence of fundamental improvement before making long-term commitments.
- Existing investors may book partial profits following the sharp upmove in the last one week. Re-entry later at lower levels can also be evaluated.
So in summary, while the technical setup for SPARC is positive, fundamentals lag behind. Caution is warranted from a long-term perspective even as short-term trades can still be considered. Keep an eye out on analyst commentary, institutional flows and financial performance for future cues.