Why is Finolex Cables falling/rising?

Recent Price Movement and Market Context

Finolex Cables has outperformed its sector today by 2.31%, with the stock touching an intraday high of ₹782.35, marking a 3.17% increase during the trading session. This rally follows a three-day consecutive gain period, during which the stock appreciated by 5.07%. Such short-term strength indicates renewed investor interest and confidence in the company’s near-term prospects.

However, the stock’s performance over longer horizons paints a more nuanced picture. While it has delivered a robust 113.50% return over five years, comfortably outpacing the Sensex’s 81.46% gain, the stock has struggled in the recent past. Over the past year, Finolex Cables has declined by 38.32%, significantly underperforming the Sensex’s 3.59% rise. Year-to-date, the stock is down 34.31%, contrasting with the Sensex’s 8.37% gain. This divergence highlights the stock’s volatility and the challenges it faces in regaining sustained upward momentum.

Technical Indicators and Trading Activity

From a technical standpoint, Finolex Cables is trading above its 5-day and 20-day moving averages, signalling short-term strength. However, it remains below its 50-day, 100-day, and 200-day moving averages, suggesting that the medium to long-term trend is still under pressure. This mixed technical picture may explain the cautious optimism among traders.

Interestingly, investor participation appears to be waning, with delivery volume on 15 Dec falling by 44.22% compared to the five-day average. Despite this decline in volume, the stock remains sufficiently liquid, supporting trades up to ₹0.33 crore based on 2% of the five-day average traded value. This liquidity ensures that the recent price gains are not hampered by market depth constraints.

Fundamental Strengths and Valuation

Finolex Cables’ fundamentals provide a solid foundation for its valuation. The company maintains a low average debt-to-equity ratio of zero, indicating a conservative capital structure with minimal leverage risk. Its net sales have grown at an annualised rate of 18.54%, while operating profit has expanded by 15.02% annually, reflecting healthy operational growth over the long term.

The company’s return on equity (ROE) stands at 11.6%, a respectable figure that underscores efficient capital utilisation. Moreover, the stock trades at a price-to-book value of 2.1, which is considered attractive and fair relative to its historical peer valuations. Despite the stock’s negative return of 38.32% over the past year, profits have only declined by 5%, suggesting that the market may be pricing in broader concerns beyond immediate earnings performance.

Institutional investors hold a significant 25.78% stake in Finolex Cables, signalling confidence from well-informed market participants who typically conduct thorough fundamental analysis. This institutional backing often provides a stabilising influence on the stock price during periods of volatility.

Conclusion: Why the Stock Is Rising Now

The recent rise in Finolex Cables’ share price on 16-Dec can be attributed to a combination of short-term technical strength and underlying fundamental resilience. The stock’s outperformance relative to its sector and the broader market over the past week, coupled with a three-day consecutive gain, indicates renewed investor interest. This momentum is supported by the company’s solid balance sheet, consistent sales and profit growth, and attractive valuation metrics.

Nonetheless, the stock’s longer-term underperformance relative to the Sensex and the decline in delivery volumes suggest that investors remain cautious. The mixed signals from moving averages and subdued investor participation imply that while the stock is currently rising, it may still face headwinds before establishing a sustained upward trend.

Investors should weigh the company’s strong fundamentals and institutional backing against its recent volatility and broader market conditions when considering their positions in Finolex Cables.

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