One sector, three small-cap stocks breaking out on charts

The cheetah may be faster than the elephant, but its lifespan is limited to just 8–12 years, while the elephant endures for over 50. In investing, small-cap stocks often mimic the cheetah—swift, agile, and capable of delivering significant returns in a short time, far outpacing their larger counterparts. Yet, like the cheetah, they come with heightened risks.

With the Indian market riding a bullish wave, the Nifty Smallcap 100 index has bounced back by 5% after a brief dip, signalling renewed optimism. Amid this volatility, one sector is standing out for its rising volumes and promising technical signals—the tea sector.

Read this | Stock market selloff: One sector, three opportunities

This article identifies three small-cap tea stocks that are breaking out of long-term consolidation phases, showing strength on the charts, and offering exciting opportunities for investors willing to take a calculated risk.

1. Jayshree Tea and Industries

With a market capitalization of 430 crore* Jayshree Tea, a familiar name in the industry, has captured investor attention with a strong technical breakout, positioning itself as a key player in the tea sector.

The stock had been in a consolidation phase for 167 months—nearly 14 years—but has finally broken free.

This prolonged consolidation kept the stock dormant, but now that it has broken out, investors should keep a close watch. The breakout has formed a bullish inverted head-and-shoulders pattern, one of the strongest reversal signals in technical analysis. The breakout from the right shoulder, combined with rising volumes, underscores the stock’s growing strength.

Investors should note that the neckline zone, between ₹120 and ₹134, may be retested—a common occurrence in technical analysis. A successful retest could offer an even stronger entry point.

And this | Three power stocks that are breaking out on the charts

With a breakout in both price and time, Jayshree Tea emerges as the first small-cap contender from the tea sector that could be primed for growth.

Dhunseri Tea & Industries

Dhunseri Tea & Industries, with a market capitalization of ₹283 crore*, has also sparked renewed investor interest.ns this 

On the weekly chart, the stock has rallied with its highest-ever weekly volumes, a clear signal of aggressive investor accumulation.

This stock broke out after a 127-week consolidation phase, a noteworthy figure in technical analysis as 127 is a Fibonacci number—a sequence often used to predict market moves.

Fibonacci numbers frequently align with key price levels or time cycles, and the 127-week consolidation is no coincidence. When stocks break out after such a prolonged consolidation, the chances of a sustained rally increase significantly.

The breakout occurred within the ₹237-258 range, which now acts as a demand zone. This means that any dip into this zone could provide an excellent opportunity for readers looking to capitalize on the breakout. Watch closely as the stock approaches this level; it may soon offer a low-risk entry point.

The Grob Tea Company Ltd

The Grob Tea Co. Ltd (Grob Tea), with a market capitalization of ₹163 crore, is the third small-cap stock showing strong breakout potential.

On the monthly chart, the stock price has surpassed its 2021 high of ₹1,435, marking a significant breakout.

A key aspect of this breakout is the record-high monthly volumes, indicating broad participation from both retail and institutional investors. In technical analysis, volume is critical, as it confirms the strength behind a price move. When a stock breaks out with higher-than-average volumes, it suggests strong conviction among investors, increasing the likelihood that the breakout will hold and propel the stock to new highs.

For more such analysis, read Profit Pulse.

With the stock breaking past its previous high, Grob Tea may be poised to reach new peaks, making it the third potential winner in the tea sector.

In conclusion, the tea sector, experiencing a resurgence in volumes and price action, offers intriguing opportunities for investors willing to take on risk. Jayshree Tea, Dhunseri Tea, and Grob Tea have all broken out of significant consolidation phases, showing strong technical signals for potential growth.

*Note: Market capitalization figures are accurate as of 10 October 2024.

Disclaimer: The purpose of this article is to share interesting charts, data points, and thought-provoking insights. It is NOT intended as investment advice or a recommendation. If you are considering making any investment, it is strongly advised to consult your financial advisor. This article is strictly for educational purposes.

About the Author: Brijesh Bhatia has over 18 years of experience in India’s financial markets as a trader and technical analyst, having worked with UTI, Asit C. Mehta, and Edelweiss Securities. He is currently an analyst at Definedge.

Disclosure: Neither the author nor his dependents hold any positions in the stocks discussed here. However, clients of Definedge may or may not hold these securities.