Check out the Nifty 500 stocks in overbought zone after the market bounce-back

by 5paisa Research Team Last Updated: 2022-03-14T15:53:23+05:30

The Indian stock market has entered a volatile territory after a sharp slide during the last few trading sessions, just weeks after testing a previous peak in January. Even though a sharp rise in crude oil prices due to the Russia-Ukraine war and its likely impact on the Indian economy continue to be factors to watch out for, bulls have been trying to slowly push back share prices from what they believe was an oversold zone.

The benchmark indices gained again on Monday, and while many market pundits are seeing a bottom for the slide in prices, few do consider this as a ‘dead cat bounce’ that may give a false comfort level for investors to pump in cash.

Indeed, the results of the state elections that were declared last week have given some comfort on the hold of the central government.

But there are many stocks that are potentially in the overbought zone given their positions on the technical charts.

In particular, we considered the Money Flow Index (MFI), which 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 prices. The index figures vary between 0 and 100, and anything below 20 could be used as a measure to pick bounce-back candidates. Stocks with value over 80 are considered in the overbought space and, therefore, may see a selloff.

Since the MFI uses both the stock price and traded volume data, it is also called the volume-weighted Relative Strength Index (RSI) as against the conventional technical measure that uses only price.

Overall, we get around 16 stocks in the Nifty 500 that could be up for a selloff, based on their position as of March 11.

If we look at the large-cap space with market valuation of over Rs 20,000 crore, three stocks meet the mark: consumer goods conglomerate ITC, drugmaker Cipla and engineering firm Grindwell Norton.

In the mid-cap basket, there are close to a dozen stocks that pass the filter. These include bourse operator BSE, Gujarat Narmada Valley, Intellect Design Arena, the Fertilisers & Chemicals Travancore, Symphony, Supreme Petrochem, Infibeam Avenues, Gujarat State Fertilizers, Bharat Rasayan, Gujarat Ambuja Exports and HEG.

All these stocks command a market valuation of between Rs 5,000 crore and Rs 20,000 crore.

Lower down still, the small-cap space has two names in the oversold zone that fit in with the oscillator range for the MFI. These are JK Paper and IOL Chemicals.

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