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CESC Plunges 26% As Stock Adjusts For Demerger. What Do Technical Says?

CESC plunges 26% as stock adjusts for demerger. What do technical says?

CESC shares fell around 26% after the stock adjusted for demerger of non-power investments into new companies. CESC had planned the demerger of its power and retail business in last financial year, which will result in benefits for all shareholders. Company has fixed October 31 as the record date and said the listing of new retail and ventures shares would take place thereafter.

As per the scheme of arrangement, the company would be demerged into two entities as planned in the scheme, viz. new Retail and Venture companies. Hence, now, there would be three companies, viz. CESC, new Retail (RP-SG Retail Limited) and Venture Companies (RP-SG Business Process Services Limited).

As per the demerger scheme, every shareholder of CESC on the record date will be issued 6 fully paid up equity shares of Rs 5 each of RP-SG Retail and 2 shares of Rs 10 each of RP-SG Business Process Services for every 10 equity shares held by such shareholder of the company. In addition, 5,00,000 fully paid up preference shares of Rs 100 each of RP-SG Retail shall be issued and allotted to the company.

For more than a year the stock resisted at the highs of 1060. This was a strong resistance for the stock and the stock made a U shape right at the resistance zone. A stock making the shape on the resistance zone is always a sign of weakness. The stock has corrected more than 40 percent for the highs. The major damage has been done in the last two months. Two bear candles back to back speak about the weakness in the stock. The fall has halted at the Fib confluence zone of 677-685. This is also the 2008 highs and hence a strong support. The stock pierced the zone but then quickly retrieved after making lows of 642. The stock is at an important support and the RSI in both the monthly and weekly charts are at an oversold zone and hence the probability of a bounce back from the current zone is very high. A monthly close above the fib zone will mean the stock will retrace back to 750-768 levels and on the higher side to 823.

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