Tea stocks getting too hot to touch?

If your morning cup of tea has not given you a kick, then the rising prices of tea stocks on the bourses definitely will. Here's a fundamental and technical view on this hot space.

Tea stocks have been rising on the back of healthy exports being carried out by most Indian tea companies. This, of course, comes on the back of the Kenyan crop failure, which is boosting demand for Indian tea.

India is the world's largest tea producer followed by China. India produced a record high of 928 million kg of tea last year compared to 820 million kg in 2004. The aroma of Indian tea is also attracting countries like Pakistan, Iran, Iraq, and Russia where the demand for Indian tea has only been rising.

All this is leading to a firming up in Indian tea prices and thus a rally of tea stocks in the stock markets. However, market experts expect to see a consolidation in this tea bull run after which they again expect an upsurge.

Fundamental view: Tea will be faced with some consolidation

Gul Teckchandani: I think the sector has to still do a lot more because we have to still see Pakistan importing tea. The Kenyan crop failure has turned out to be more or less correct, so we will be faced with better demand.

This gives the manufacturer or commodity producer, pricing power. We also have to see some consolidation, which will happen here therefore all this will drive prices in terms of share prices.

Deven Choksey of KR Choksey Securities: There is an upside in the entire commodity space. There are no other issues with tea. The Kenyan crop issue was the main reason why prices have surged. However I feel this run up is temporary because no fresh figures have emerged from this space.

Tea stocks seem to be momentum driven, these are momentum plays and we are not sure about going fresh into them.

Tata Tea is one stock that we are confident about within this space, otherwise we don't want to touch this space.

Technical view: Resistance levels will be touched, after which fresh upmove will begin.

Rahul Randeria of Angel Stock Broking:

There is more upside in the tea sector, since there is a lot of strength. We feel tea stocks will reach their top face some resistance and consolidate, after which we see a fresh upmove. A stock like Tata Tea is showing a break out at Rs 896 level, its next target is Rs 922-950 level, so we see a 10-15% upside from here. The stock will find strong support at Rs 816 level.

McLeod Russel was looking range bound but it gave a breakout at Rs 130 level, it is up more than 4% today. So we see a target at Rs 160 level for it, the stock's volumes are picking up. However, a sideways movement in this stock should be looked at as a buying opportunity. Over the next one year its target is Rs 210 level.

Another stock that we would bet on is Jayshree Tea, its top is the Rs 220 level, after this it has another Rs 80 rise which is a one year target again. So we see a consolidation and then a fresh rise in this space.

Technical analyst, E Mathew:

I like the movement in McLoed Russel India though I do feel that in the long run it is difficult to take a call on tea, there is an over enthusiasm here which is not justified. Technically it looks like the stock has formed and has got tremendous support around Rs 115-120 zone and again at Rs 124-125 zone where it has decent support.

This stock will now go ahead and pierce its earlier highs and is going to cross the Rs 138-140 barrier. McLoed Russel India has formed a good consolidation at lower levels and it is certainly poised for higher highs in days to come.