Nifty 500: Time to cheer or worry? 9 in 10 Nifty 500 stocks trading above 200-DMA

Mumbai: The recent surge in the stock market has propelled over 92% of the stocks in the broad-based NSE 500 index above their 200-day moving average (DMA), a key technical indicator used to gauge long-term trends in both individual shares and indices. When a stock or an index is above the 200-DMA, it’s a bullish signal, and vice versa. While an overbearing majority of stocks above this trend indicator usually points to an overbought condition and precedes a correction, analysts said a sharp drop in the markets may be unlikely for now thanks to the strong domestic flows.

Out of the NSE’s top 500 stocks, 465 are trading above 200-DMAs. In the Nifty 50 index, 47 are trading above the key technical indicator. Among the Nifty stocks, NPTC, Tata Motors, L&T, Coal India, Cipla and Adani Ports are trading 20% above their 200-DMAs, while Titan, M&M, IndusInd Bank, Dr Reddy’s Lab, and Maruti are trading 17-19% above 200-DMAs.

Some analysts said that the percentage of stocks above 200-DMAs and the broad market indicators are pointing to the market at ‘extreme’ levels.

“Price moving higher and improving breadth is a sign of a strong market and robust participation, yet after such a sharp rally, breadth has reached an extreme zone, which points at short-term exhaustion,” said Pritesh Mehta, EVP of YES Securities. “We believe, whenever breadth reaches an extreme zone, it is normally followed by a phase of sideways or time-wise correction in price as seen between mid-July and mid-August ’23.”

The strength of domestic flows into the market could delay the likelihood of a market reversal.

“The rally in mid- and small-cap has led to a broad-based rise in Indian equities. So, if we see from a two-year perspective, mid- and small-cap are covering the ground, which it didn’t in FY23,” said Siddarth Bhamre, research head, Religare Broking. “Though valuations are not comforting, fund flows may ensure this rally may at best pause with some hiccups but won’t get over immediately.”

Raamdeo Agrawal chairman, Motilal Oswal Financial Services said, ” We are at that stage of the market cycle where mid-caps and small-caps are disproportionately valued. The market has its way of correcting excesses. For investors willing to stay put in equities for five to six years, there is scope for making 12-14% returns every year. They should be willing to brace for sharp drawdowns too; but if they can withstand that, there is a lot of money to be made.”

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