Nifty dives below long-term moving average, joins over 300 Nifty500 stocks

More than 300 stocks in Nifty500 are trading below their long term average, 200-day moving average (DMA). Prominent names like MRF, Page Industries, TTK prestige, Wabco, Bayer Crop, Blue Dart, HEG, Cera Sanitaryware, etc. figure in them.

The Nifty50 index also joined them on July 24, slipping below its long-term average, 200-day exponential moving average (EMA) placed at 11,297.

“Most of the companies mentioned above have reported dismal financial performance due to challenges faced in their respective sectors. Even though they are fundamentally sound, the near term outlook remains muted due to the on-going economic slowdown and lack of private capex,” Ajit Mishra, Vice President, Research, Religare Broking Ltd told Moneycontrol.

Mishra said it would be prudent to accumulate these stocks in a phased manner with long term view as further downside cannot be ruled out in the near future.

Why long-term averages?

Let’s understand why long-term averages like 200-DMA or 200-day EMA are important. Theory suggests that the 50-DMA and 200-DMA can help traders filter stocks that are showing signs of strength amid market volatility.

If a stock's price remains below 200-DMA on the daily chart, the stock is generally considered to be in an overall downtrend and vice versa. In technical trading, moving averages such as the 50-DMA, 200-DMA act as both support and resistance levels for the stock.

EMA is just another variant of DMA with a slight tweak in the formulae.

Table: Top 20 of 323 stocks that are trading below 200-DMA as of July 23. This table is for reference only and not necessarily buy or sell ideas.

Over half of Nifty stocks below 200-DMA

Persistent selling by foreign investors due to macro and tax-related factors have now started reflecting in stock prices.

Among the Nifty names, 27 are trading below 200-DMA. They include Dr Reddy's, Eicher Motors, Britannia Industries, HUL, Tata Steel, Tata Motors, M&M, Tech Mahindra and Cipla, among others.

Experts suggest buying these marquee names for the long term as they will benefit once the economic situation improves.

“Buying for building a long term portfolio can be initiated now in some stocks from Nifty. We cannot time the lows and highs of the market and so investors must buy in a phased manner into fundamentally strong stocks when they are trading much below their 200-DMA,” Romesh Tiwari, Head of Research, CapitalAim said.

Table: 27 Nifty stocks that are trading below 200-DMA as of July 23. 

However, he added one should not to invest a significant amount when the stocks are sliding as stocks take time to consolidate after a significant fall. So, Investors can buy when the stock price settles after the slide stops, Tiwari adds. Among the above-mentioned stocks, he prefers ITC, Zee, Sun Pharma and Maruti.