34 of Nifty stocks trading above 200-DMA

Asian Paints, YES Bank, Hindalco, Tata Steel, Tata Motors, ACC and NTPC are some of the Nifty 50 constituents that are trading above their respective 200-DMA

As many as 34 stocks, or nearly 70 per cent of the Nifty 50 index constituents, are trading above their respective 200-day moving average (DMA). The Nifty 50 index closed at 8,266 on Tuesday, its highest level since October 23, 2015. After the Budget, the index has rallied 18 per cent, or 1,279 points, from 6,987 on February 29, 2016.

Among individual stocks, Asian Paints, YES Bank, Hindalco, Tata Steel, Tata Motors, Kotak Mahindra Bank, ACC and NTPC are some of the Nifty 50 constituents that are trading above their respective 200-DMAs. Of these, Asian Paints, Kotak Mahindra Bank, Tata Motors and Zee Entertainment Enterprises hit their respective 52-week high in intra-day trade on Tuesday.

Given the sharp run-up and the fact that 34 of the Nifty50 index constituents are trading above their respective 200-DMAs, technical analysts seem to be sounding out a word of caution. However, they do suggest that the long-term India equity story remains intact.

  Sacchidanand Uttekar, equity technical analyst at Motilal Oswal Securities, explains: “We have seen a phenomenal run-up recently, with the Nifty surging nearly 500 points in a few sessions once it crossed the 7,700 mark. However, it has been consolidating since the past few days. This is the first time that the momentum oscillators have come into the over-bought zone. This is an alarming sign.” “Having said that, we remain optimistic on the market. Correction at regular intervals will keep this cycle healthy. We do not expect an immediate jump to 8,700 levels on the Nifty — which is the broader target we are talking about this year — but there could be a correction back to 8,000 levels,” he adds.

The ‘200-DMA’ is considered by investors as an important support level for an index or a stock. If the scrip trades above its 200-DMA, then analysts considered it to be in a long-term bullish trend. By seeing the number of stocks above the 200-DMA, or below it, analysts also gauge the overall strength and the likely direction of the market.

In terms of specific stocks and sectors, Uttekar believes pharma and information technology stocks should start participating in the rally going ahead. “In the next two months, the Nifty is like to remain range-bound between 8,000-8,400 levels. The next leg up should be driven by auto, banks and financial sectors. Pharma stocks may also do well, as they appear to be in the last leg of a bearish phase,” he says.