Why is Swaraj Engines falling/rising?

Short-Term Price Movement and Market Context

The stock has been under pressure over the past week and month, with returns of -5.62% and -8.45% respectively, contrasting sharply with the Sensex’s positive gains of 1.37% and 1.50% over the same periods. Notably, the stock has declined for four consecutive days, losing 7.28% in that span. On 20-Nov, it touched an intraday low of ₹3,620, down 4.39%, with heavier trading volume concentrated near this lower price point. This suggests selling pressure and a lack of immediate buying interest at higher levels.

Further technical indicators reinforce this bearish sentiment. Swaraj Engines is trading below all key moving averages – the 5-day, 20-day, 50-day, 100-day, and 200-day averages – signalling a short-term downtrend. This technical weakness is particularly notable given that the broader diesel engines sector gained 2.16% on the same day, indicating that the stock’s decline is not reflective of sector-wide weakness but rather company-specific or sentiment-driven factors.

Interestingly, investor participation has surged recently. Delivery volume on 19 Nov rose sharply by over 470% compared to the five-day average, reaching 36,830 shares. This spike in trading activity could indicate increased investor interest, possibly from both buyers and sellers, but the weighted average price leaning towards the day’s low suggests that sellers have had the upper hand.

Long-Term Performance and Fundamental Strengths

Despite the recent price softness, Swaraj Engines has delivered robust long-term returns. Year-to-date, the stock is up 25.56%, significantly outperforming the Sensex’s 9.59% gain. Over one year, the stock’s return of 26.46% also surpasses the benchmark’s 10.38%. The company’s three-year and five-year returns are even more impressive, at 136.29% and 168.27% respectively, dwarfing the Sensex’s 38.87% and 95.14% gains over the same periods. This consistent outperformance highlights the company’s strong growth trajectory and investor confidence over time.

Fundamentally, Swaraj Engines boasts a high return on equity (ROE) of 44.26%, reflecting efficient management and profitable operations. The company maintains a low debt-to-equity ratio, effectively zero on average, which reduces financial risk and enhances balance sheet strength. Its price-to-book value ratio of 11.5 indicates a premium valuation relative to peers, justified by its solid earnings growth of 19.7% over the past year and a PEG ratio of 1.3, suggesting fair valuation relative to growth prospects.

Institutional investors have also increased their stake by 0.54% in the previous quarter, now collectively holding 13.58% of the company. This rising institutional participation often signals confidence in the company’s fundamentals, as these investors typically conduct thorough analysis before committing capital. Moreover, Swaraj Engines has consistently outperformed the BSE500 index in each of the last three annual periods, reinforcing its status as a strong performer in the mid-cap space.

Balancing Short-Term Weakness with Long-Term Potential

The recent decline in Swaraj Engines’ share price appears to be driven primarily by short-term technical factors and profit-taking, rather than any deterioration in the company’s fundamentals. The stock’s underperformance relative to both the Sensex and its sector over the past week and month contrasts with its strong year-to-date and multi-year returns. The elevated trading volumes near the day’s lows and the stock’s position below all major moving averages suggest that investors are cautious in the near term.

However, the company’s high ROE, low leverage, and steady profit growth underpin its attractive long-term investment case. The increased institutional interest further supports confidence in the stock’s fundamentals. Investors may view the current weakness as a potential entry point, especially given the company’s consistent outperformance and fair valuation metrics.

In summary, while Swaraj Engines is experiencing a short-term price correction amid broader market dynamics and technical selling pressure, its strong financial health and long-term growth record continue to make it a noteworthy contender in the diesel engines sector.

Get 2 full years of MojoOne Premium for only Rs. 12,999. Subscribe for 1 year and we'll add another year FREE. Offer valid for a limited time. Start Saving Now →