Majority of Nifty 500 shares waiting for earnings before following Nifty’s rally; use ‘buy on dips’ approach

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If the buzz in the F&O space last is it be believed, then markets are gearing up for more upsides. 72% of the stocks on the F&O segment ended the last week with a positive bias, with 46% witnessing long build up and 26% short covering, while only 20% witnessed short build up. Among these stocks, long build up was seen the highest in healthcare, capital goods and realty. Incidentally, Realty index registered the most gains last week with a 4.3% return. IT and metals had the least number of stocks with long build up, but majority of them are undergoing short covering, and hence they do have good room for more upsides.

Since 17,800 was the target we played for in the last week, we looked at how many stocks have now reached their peaks of 6th March, when Nifty visited the 17,800 mark last. In fact, market-wide, 37% of the stocks have already crossed this level, while 42% of Nifty 50 stocks are also crossing their respective peaks. The sectors that have seen at least 50% of stocks above such peaks are manufacturing, industrial and capital goods.

Last week, we had raised the upside objective for Nifty from 17,470 to 17,800, which appeared too near a target, when Nifty started steaming in, until it was timed out, buy the truncated week. While Thursday’s close was encouraging for Nifty, the participation from broader markets is still lagging. In fact, though Nifty cleared the 200 DMA, as well as the 50 DMA, 44% of Nifty 50 stocks is still below 200DMA. Only about 35% of NSE 500 stocks have crossed their respective 60 DMA, suggesting that stocks are waiting for earnings to kick in before following Nifty. This lag may take some bite off Nifty’s surge, as traders are regrouping to possibly take a stock specific approach as earnings will command more attention in the next 30 days or so.

We will hence open the week with less enthusiasm as the last, and while hoping that the dips are held inside the 17,470-370 band, in order to retain the 17,800 trajectory. Oscillators did witness signs of peaking in the intraday horizons on Thursday, which in fact led to the pause, but the 3 day RSI continues to hold above breakout level, and favors an achievement of at least 17,700, the two standard deviation mark, before any significant pull back. Until then, a “buy on dips” approach is favored.

First published in Financial Express

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