Nifty Midcap index dips below 200-DMA; remain on sidelines, analysts advise

The breach of a critical level after a period of nearly 10 months reflects a shift in sentiment. The overall trend remains bearish as the index is making lower top, lower bottom on the technical chart

The Nifty Mid-cap index closed below the 200-day moving average (DMA) on Friday for the first time since April 2022 and continued to slide in trade on Monday. The index hit an intra-day low of 29,631 levels on Monday and skidded around 1.2 per cent as compared to 0.7 per cent fall in the Nifty50 index during the day.

The breach of a critical level after a period of nearly 10 months reflects a shift in sentiment, analysts said. The 200-DMA – placed at 30,189-mark – has now become the immediate hurdle for the index and technical charts point to a gradual decline towards 28,500 to 28,200 levels in the days ahead in case the overall market mood remains subdued.

“The Midcap index has seen a steady fall in the last few weeks and is now trading below crucial levels. Several stocks within the mid-cap segment have tumbled around 40 – 50 per cent from their peak. The overall trend remains bearish as the index is making lower top, lower bottom on the technical charts. The index has support at 26,600 and then at 29,239 levels. It faces resistance at 30,190 and then at 30,347 levels,” suggests Nandish Shah, senior derivative and technical analyst at HDFC Securities.

That apart, a formation of “Descending triangle” pattern on the Nifty midcap index further adds to the weak bias. A decisive confirmation of the neckline breach placed at 30,000 levels, charts suggest, could see more sell-off in this space going ahead. Also, a “Death Cross” of the 100-DMA converging on the 50-DMA suggests every upside is likely to be met with selling.

Thus far in calendar year 2023 (CY23), the Nifty Mid-cap index has slipped 5.7 per cent as compared to 4.2 per cent drop in the Nifty50 index.

Aditya Birla Fashion and Retail, Balkrishna Industries, Bata India, Container Corporation of India, Crompton Greaves Consumer Electricals, Deepak Nitrite, Emami, Godrej Properties, Laurus Labs, Motherson Sumi Wiring India, Nippon Life India Asset Management, Shriram Finance, Sun TV Network and Trident, which have already breached their respective 200-DMAs, could see further decline of up to 10 per cent, charts suggest.

Given the overall market mood, Shah says long-term investors (those with one – two year investment horizon) can look to buy selectively, but traders should remain fence-sitters till a clear trend emerges.

Another worrying factor for the Indian markets, analysts believe, is the gradual decline in retail investor participation. This comes at a time when the foreign institutional investors (FIIs) had been net sellers of Indian equities, selling over Rs 3,466 crore selling in the last three days alone.

“A data which is hugely significant from the Indian market perspective is the declining influence of Indian retail investors. In 2021 and 2022, sustained retail buying helped absorb FII selling, which kept the market resilient. But the latest data showed that the number of retail clients are down by 38-lakh in the last six months and the retail / HNI share in daily volume is down to 44 per cent from the peak of 68 per cent,"” said V K Vijayakumar, chief investment strategist at Geojit Financial Services.

That said, as an investment strategy, Vijayakumar suggests investors can use dips to accumulate high quality stocks in banking, capital goods, information technology (IT) and cement sectors.

The current market sentiment, according to G Chokkalingam, founder and chief investment officer at Equinomics Research, is not in favor of the mid-and small-cap segments. “We continue to suggest a minimum 50 per cent allocation to top 250 stocks for the investors with average risk profile as part of our equity research strategy in the short-term,” he said.