Shares of Central Depository Services (CDSL) rose by 8% in intraday trade on NSE on August 30 after social media buzz that the company has been mandated to do verification and KYC for all insurance companies which may boost the firm's revenue.
The stock closed 5.19% higher at ₹1,249.
While MintGenie could not verify the development and there is no official communication from the firm regarding this, social media platforms are awash with the rumour which seems to have shot the stock higher.
CDSL claims to be the largest depository in the country in terms of active demat accounts.
On August 4, the company said that it became the first and only listed depository in India to have more than seven crore active demat accounts.
"Central Depository Services (India) Limited (CDSL), first and only listed depository in India, is pleased to announce the crossing of another noteworthy milestone, as the seven crore (70 million) plus active demat account were opened at CDSL," the company stated.
The stock hit its 52-week high of ₹1,734.40 on December 15, 2021, and, as of the August 29 close, is down 32% from that level.
In Q1FY23, the company's total income jumped 30% year-on-year to ₹157.81 crore while net profit jumped 22% to ₹89.11 crore.
What should you do?
Analysts are positive about the stock even as they highlight the current premium valuation. Fundamental factors and technical charts seem to favour the stock.
Vikas Jain - Senior Research Analyst at Reliance Securities pointed out that the stock has broken out from its 13-week consolidation range with solid volumes. Any decline near ₹1,190-1,220 could be an excellent opportunity to add the stock and in the current momentum, it can test its 200-day simple moving average (SMA) at ₹1,340.
Rahul Goud, Research Analyst - Equity Research, CapitalVia Global Research said after a correction from its all-time high price of ₹1,734, it is currently trading at a price-to-earnings ratio of 39.88, which is higher than the sector PE of 20.7 and indicates premium valuation.
Given the financialisation of assets, CDSL will be the sector's undisputed victor. The company is exceeding the industry on the earnings front, Goud added.
Over the past five years, the revenue of the company has grown at a yearly rate of 26.71%, compared to the industry average of 6.03%, and over that same period, the market share climbed from 5.12% to 23.21%, showing solid financials for the company.
"The stock had been trading in a small range for the previous three months, but today it has broken out of that range and is now trading near the support zone for the upward trend line. Investors can buy the stock around ₹1,250 with a stop loss of ₹1,120 and a short-term target price of ₹1,370," said Goud.
“On the technical front, the counter formed a rounding bottom after a meaningful correction, however, ₹1,300-1,350 is a critical resistance zone; above this, we can expect a move towards the ₹1,550-1,600 zone,” said Santosh Meena, Head of Research, Swastika Investmart.
“On the downside, ₹1,150 has become a near-term base. Momentum indicators are showing positive divergence and still have room before they enter into overbought territory,” said Meena.
Pranit Arora, Co-Founder & CEO of Univest pointed out that CDSL stock has turned bullish in the short term after crossing its EMA (10,20) on daily charts at ₹1,142. Despite having good fundamentals, CDSL didn’t participate in the recent rally and, thus, has shown a significant jump today.
"We can see ₹1,280 level soon for the stock of CDSL. It can show resistance in the range of ₹1,280–1,325. If the stock manages to cross these levels with high volumes, we can expect a strong bullish rally till ₹1,575 in three-four months," said Arora.
Disclaimer: The views and recommendations are those of individual analysts or broking firms, not MintGenie.
