Bharti Airtel, HCL, Sun Pharma among large caps in overbought zone

The Indian stock market has been raring to test its peak attained in the Diwali rally last year with the top indices just 2-3% shy of their all-time highs even as pundits expect some selling pressure soon. 

However, there are many stocks that are already in the overbought zone given their positions on the technical charts.

We picked two measures—the Money Flow Index (MFI) and Relative Strength Index (RSI)—to check which stocks have entered the overbought zone under both parameters.

The MFI is a technical oscillator that incorporates both the share price and traded volume data for placing companies in the overbought or oversold baskets. The index can also potentially help an investor to identify divergences that could be hinting at a change of trend in price.

The index figures vary between 0 and 100 and anything above 70 could be used as a measure to pick candidates that could see a slide in price soon. In contrast, the RSI is a conventional technical measure that uses only the stock price.

We ran an exercise to see which stocks are trading above the 70-mark across both the RSI and MFI methodologies. These stocks in effect could be in the overbought zone and may see a downtrend.

Overall, we get hundreds of stocks but if we filter it down to Nifty 500, we get a pack of 32 companies. Of these, a third are in the small and mid-cap space while the others belong to the large cap basket.

The situation was very different the last time we ran the same exercise two months back when there was an equal split and still starker early this year when there were just a handful of large and mid-caps.

Large caps in overbought zone

If we look at the large-cap space with a market valuation of over Rs 20,000 crore, we have 21 stocks that meet the mark.

These include Bharti Airtel, HCL Technologies, Sun Pharmaceutical, UltraTech, NTPC, M&M, Power Grid, Cipla, Torrent Pharma, Trent, Canara Bank, Bharat Forge and MRF.

Lower down the order, Cummins India, Union Bank of India, Power Finance Corp, Indian Bank, IRFC, BHEL, Syngene and Bank of India figure in the overbought zone.

Mid and small caps in overbought zone

Mid-cap companies commanding a market valuation of Rs 5,000-20,000 crore and in the overbought group include IIFL Finance, NLC India, Granules India, Metropolis Healthcare, AstraZeneca Pharma, Godfrey Phillips, MCX, Shipping Corp and Jubilant Pharmova.

The small-cap space within Nifty 500 has just two names in the overbought zone that fit in with the oscillator range for both MFI and RSI indexes: Infibeam Avenues and Engineers India.