Investors, analysts suggest, should stay on the sidelines and wait patiently for clouds to clear.
The sharp sell-off in Indian equity markets over the past few weeks has pulled 38 stocks, or 75 per cent of the scrips that comprise the Nifty 50 index below their respective 200-day moving average (DMA).
The 200-DMA is an indicator that the investor community and trading experts recognize as the most relevant trend indicator.
Stocks trading above the 200-DMA, traders believe, possess an underlying bullish strength and expect them to rally higher.
On the other hand, those below this crucial technical indicator are viewed from a bearish perspective with stock prices anticipated to see further fall.
And if analysts are to be believed, the indices will remain choppy over the next few weeks as the markets come to terms with the new normal of global central banks rising rates in a move to contain galloping inflation.
"Nifty's recent pull-back from the 16,915 levels and the plunge thereafter was on expected lines. That said, it has brought the markets into uncharted waters since the last eight months. All this is fueling uncertainty. For the Nifty, 16,400-15,800 levels are being anticipated now. With the VIX above 20, the prospects of a sustained slide towards 14,500 levels cannot be ruled out in the coming days," says Anand James, chief market strategist at Geojit Financial Services.
Bajaj Auto, Cipla, Divi's Laboratories, HCL Technologies, HDFC Bank, HDFC, ICICI Bank, Infosys, Larsen & Toubro, Maruti Suzuki India and Tata Steel are some of the stocks that are currently trading below their respective 200-DMA, charts show.
"The single important factor roiling global equity markets is the re-emergence of inflation as a major threat and the market's scepticism over the central banks' ability to contain inflation without triggering a sharp economic slowdown," said Dr V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
"Calibrated buying on declines in small quantities in high quality stocks with preference for value over growth would be a good investment strategy," added Dr Vijayakumar.
Among the 38 stocks that have dipped below their respective 200-DMA, Tech Mahindra and Wipro have tumbled over 30 per cent, while Apollo Hospitals Enterprise and Dr.
Reddy's Laboratories have plummeted 22 per cent so far in calendar year 2022 (CY22).
Altogether, 19 stocks (50%) have tanked over 10 per cent year-to-date (YTD).
Under the existing circumstances where the three-fourth stocks are under 200-DMA, the trend, analysts said, seems to indicate selling pressure in the days ahead.
The inability of the Nifty to overcome the major sell-off looks feeble.
Investors, they suggest, should stay on the sidelines and wait patiently for clouds to clear.
On technical grounds, the Nifty50 index has an immediate support at 16,400 levels, said analysts.
Any move below the same may extend the fall toward 16,320-16,250 mark.
On the flip side, 16750-16870 will act as strong resistance.
"The sudden repo rate and cash reserve ratio (CRR) hike by the RBI has perplexed investors and this marks the end of pandemic-led stimulus. Investors would now have to work very hard to earn good returns as the days of easy money are ending," said Sunil Nyati, managing director, Swastika Investmart..
"We suggest investors stay with quality names and invest in stocks that have a good growth outlook and are valued reasonably," he added.
"Technically, 16,000-15,500 is an important demand zone for the Nifty 50 index where we can expect some buying interest," explained Nyati, adding, "However, bulls will need to do heavy lifting to cross the 17,000-17,250 supply zone."