After sharp sell-off, 75% of Nifty50 stocks trade below their 200-DMA

The sharp sell-off in Indian equity markets over the past few weeks has pulled 38 stocks, or 75 per cent of the counters that comprise the Nifty50 index, below their respective 200-day moving average (DMA).

The 200-DMA is an indicator that investors and traders recognise as the most relevant indicator of trends. Stocks trading above the 200-DMA, traders believe, possess an underlying bullish strength and expect them to rally higher. On the other hand, those below this crucial indicator are viewed from a bearish perspective with stock prices anticipated to see further fall.

And if analysts are to be believed, the indices will remain choppy over the next few weeks as the markets come to terms with the new normal of central banks raising rates in an effort to contain galloping inflation.

“Nifty’s recent pull-back from the 16,915 levels and the plunge thereafter was on expected lines. That said, it has brought the markets into uncharted waters since the last eight months. All this is fueling uncertainty. For the Nifty, 16,400-15,800 levels are being anticipated now. With the VIX above 20, the prospects of a sustained slide towards 14,500 levels cannot be ruled out in the coming days,” Anand James, chief market strategist at Geojit Financial Services.

Bajaj Auto, Cipla, Divi’s Laboratories, HCL Technologies, HDFC Bank, HDFC, ICICI Bank, Infosys, Larsen & Toubro, Maruti Suzuki India, and Tata Steel are some of the stocks that are currently trading below their 200DMA, charts show.

“The single important factor roiling global equity markets is the re-emergence of inflation as a major threat and the market’s skepticism over the central banks’ ability to contain inflation without triggering a sharp economic slowdown. Calibrated buying on declines in small quantities in high quality stocks with preference for value over growth would be a good investment strategy,” said V K Vijayakumar, chief investment strategist at Geojit Financial Services.

Among the 38 stocks that have dipped below their respective 200DMA, Tech Mahindra and Wipro have tumbled over 30 per cent, while Apollo Hospitals Enterprise and Dr Reddy’s Laboratories have plummeted 22 per cent so far in calendar year 2022 (CY22). Altogether, 19 of the stocks (50 per cent) have tanked over 10 per cent year-to-date (YTD).

Under the existing circumstances, where three-fourths if Nifty50 stocks are under the 200-DMA, the trend, analysts said, seems to indicate selling pressure in the days ahead. Investors, they suggest, should stay on the side lines and wait for the clouds to clear.

On technical grounds, the Nifty50 index has an immediate support at 16,400 levels, said analysts. Any move below that may extend the fall toward 16,32016,250. On the flip side, 16,75016,870 will act as strong resistance.

“The sudden repo rate and cash reserve ratio (CRR) hike by the Reserve Bank of India (RBI) has perplexed investors and this marks the end of pandemic-led stimulus. Investors would now have to work very hard to earn good returns as the days of easy money are ending. We suggest investors stay with quality names and invest in stocks that have a good growth outlook and are valued reasonably. Technically, 16,000-15,500 is an important demand zone for the Nifty 50 index where we can expect some buying interest. However, bulls will need to do heavy lifting to cross the 17,00017,250 supply zone,” said Sunil Nyati, managing director at Swastika Investmart.