Cairn India: 120-115 May Be A Very Good Buying Zone

CMP: 126

Buy on dips near 120-115

TGT: 133-142-155*-175 (1-12M)

TGT: 191-263 (24-36M) (without VEDL proposed merger scenario)

TSL< 110/105

Note:Time & price action on the technical chart suggests that consecutive closing below 110-105 zone for any reason, Cairn may further fall to 100-94*-87 & 79-68 area in the worst bear case scenario and in that case, one can accumulate around 94-87 (being another strong support zone) for better investment buying average.

Cairn is under pressure for crash in crude oil prices apart form VEDL merger fiasco. Also a minority retail shareholder recently filed a petition in Mumbai HC against Cairn & VEDL alleging that the 2014 loan of $1.25 bln by Cairn Plc to VEDL is illegal. The case is scheduled to be heard in Jan'16.

Cairn Plc also wrote a letter to our FM recently to seek $700 mln damage for the IT department action & attachment, which caused loss of value of its shareholding in Cairn India.

In any way, now Crude is trading near its seven yrs low around $36.50 due to various factors. Technically, Crude is oversold & its a crowded trade. Crude has good support of $35-32 and if this level does not break convincingly, then expect a dead cat bounce up to $45 in the near term.

As performance of Cairn is directly proportional to Crude oil prices, in that scenario, expect some rally in Cairn scrip up to 155 in the near term. In future, if the proposed VEDL merger ratio is sweetened in favour of minority shareholder (Cairn Plc & LIC), then expect further rally in Cairn.

Also the Indian IT dept has attached the 9.78% Equity share holding of Cairn Plc in Cairn India for the ongoing tax disputes with it and without the approval of IT dept, this shareholding can't be transferred to VEDL.

There will be also other various hurdles for VEDL for this merger and if for any reason, merger can't happen in the near term or the deal is sweetened significantly, then Cairn may rally significantly towards 200 level. As par some analysis, on standalone basis & Cairn's cash balance in its BS, Cairn can be valued around 197 !!

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