90% of Nifty 500 stocks trade above 200-DMA; time to be selective: Analysts

The sharp run up in the markets in the last few sessions has made analysts cautious, who now expect the markets to consolidate before resuming their journey north

Nearly 90 per cent of the stocks comprising the National Stock Exchange Nifty 500 Index and 49 of the 50 stocks that make up the Nifty50 are trading above their respective 200-day moving averages (DMAs).

The 200-DMA is considered one of the most relevant trend indicators by investors and traders. They believe that stocks and indices trading above this key level exhibit strength and are likely to rally, while those trading below this level are viewed as bearish, with the stock/index expected to see a selloff.

The sharp run-up in the markets in the past few sessions has made analysts cautious. They now expect the markets to consolidate before resuming their upward journey.

Analysts suggest that investors should remain selective and invest only where valuations are within a comfortable zone with visibility in earnings.

“Even though the undertone is bullish, the market is likely to consolidate in the near term, as the upmove will be countered with profit booking by domestic institutions and individual investors, who are sitting on significant profits. Dips will be bought by foreign institutional investors (FIIs), who have emerged as sustained buyers. The continuous decline in US bond yields (the 10-year yield is now below 4.2 per cent) will ensure FII buying,” said V K Vijayakumar, chief investment strategist at Geojit Financial Services.

In the Nifty 500, Ambuja Cements, Life Insurance Corporation of India, Zomato, Indian Railway Catering and Tourism Corporation, DLF, Havells, Hindustan Petroleum Corporation, Canara Bank, Cipla, and Eicher Motors are some of the prominent counters trading above their respective 200-DMA. On the other hand, Star Health and Allied Insurance Co, Rajesh Exports, SBI Cards & Payment Services, Brightcom, Delta Corp, Page Industries, Aether Industries, Vedanta, and Whirlpool of India are some of the scripts that are below this key technical parameter.

The sharp run in Adani Group stocks in the past three sessions has pushed Adani Enterprises and Adani Ports above their 200-DMA in the Nifty50 pack.

Asian Paints, Hindustan Unilever, Infosys, ITC, Larsen & Toubro, Reliance Industries, State Bank of India, and UltraTech Cement are the other front-line counters trading above their respective 200-DMA. However, UPL is the only stock in the Nifty50 pack still below this key parameter.

Brace for volatility

Technical analysts believe there is still room for upside in the short term, but the road to higher levels will be paved with volatility.

The Nifty50, they suggest, is on track to hit 21,000 levels in the short term, which is its key resistance zone, while the support is at 20,700 levels.

“The shallow retracement after breakout from four months of consolidation signifies inherent strength in the markets. This suggests a robust price structure, making us believe that the Nifty is likely to head towards 21,000 in the coming weeks. In the process, bouts of volatility would offer incremental buying opportunities. Any temporary breather should be utilised as an incremental buying opportunity, with immediate support placed at 20,300 levels,” said analysts at ICICI Securities in a note.

The markets, according to Vijay L Bhambwani, an independent technical analyst, are in a blue-sky zone and will move up gradually amid higher volatility.

“The bears are still licking their wounds. Nifty50 hitting the 22,000 mark is still in the realm of possibility, but it is too early to predict the time frame. That said, there will be a lot of churn/sector and stock rotation if the markets are to move higher from here on out,” he said.