Recent Price Movement and Market Context
Arvind Ltd has been on a losing streak for five consecutive trading days, accumulating a negative return of 5.84% over this period. This underperformance is more pronounced when compared to the Sensex, which declined by only 1.18% during the same week. The textile sector, to which Arvind belongs, also faced pressure, falling by 2.26%, indicating broader sectoral weakness that has weighed on the stock’s performance.
Intraday price action on 08 January showed some volatility, with the stock reaching a high of Rs 317.95, up 2.68%, before retreating to a low of Rs 298.90, down 3.47%. The weighted average price suggests that a greater volume of shares traded closer to the day’s low, signalling selling pressure. Furthermore, Arvind Ltd is currently trading below all key moving averages – 5-day, 20-day, 50-day, 100-day, and 200-day – which is a technical indication of a bearish trend.
Investor Participation and Liquidity
Investor engagement appears to be waning, as evidenced by a 15.4% decline in delivery volume on 07 January compared to the five-day average. This reduction in investor participation could be contributing to the stock’s downward momentum. Despite this, liquidity remains adequate for moderate trade sizes, with the stock’s traded value supporting transactions up to Rs 0.1 crore based on 2% of the five-day average traded value.
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Long-Term Performance and Valuation Metrics
While the short-term price action has been negative, Arvind Ltd’s longer-term performance tells a more nuanced story. Over the past year, the stock has declined by 26.74%, a stark contrast to the Sensex’s 7.72% gain. However, over three and five years, the stock has delivered impressive returns of 246.71% and 487.46% respectively, significantly outperforming the benchmark indices.
This divergence between price performance and fundamentals is further highlighted by the company’s robust profit growth. Despite the stock’s recent weakness, Arvind Ltd’s profits have increased by 41.9% over the last year. The company’s operating profit has grown at an annual rate of 35.42%, and its operating cash flow for the latest year reached a peak of Rs 762.88 crore. Additionally, the profit after tax for the latest six months stood at Rs 156.64 crore, reflecting a strong growth rate of 58.17%.
Valuation and Institutional Confidence
Arvind Ltd’s return on capital employed (ROCE) is at a healthy 12.99%, which is considered attractive given the company’s enterprise value to capital employed ratio of 1.8. This suggests that the stock is trading at a discount relative to its peers’ historical valuations, offering potential value for investors willing to look beyond short-term volatility.
Institutional investors hold a significant 35.52% stake in the company, indicating confidence from market participants with greater analytical resources. This institutional backing often provides a stabilising influence on the stock, even amid periods of price weakness.
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Conclusion: Why Is Arvind Ltd Falling?
The recent decline in Arvind Ltd’s share price can be attributed primarily to short-term technical and sectoral factors. The stock’s consistent underperformance relative to the Sensex and its textile sector peers, combined with trading below all major moving averages, signals a bearish trend. Reduced investor participation and a weighted average price skewed towards the day’s lows further reinforce the selling pressure.
However, the company’s strong fundamentals, including robust profit growth, attractive valuation metrics, and significant institutional ownership, suggest that the current weakness may be more reflective of market sentiment and sectoral headwinds than deteriorating business performance. Investors may view the recent price drop as a potential entry point, given the company’s healthy long-term growth trajectory and discounted valuation.
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