One in every three Nifty50 stocks has recorded a Death Cross; Is it time to turn cautious?

The Nifty50 turned negative for the year 2022 on Monday when the index fell by nearly 2 per cent amid muted global cues.

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The Nifty50 closed at 17,213 on 7 February wiping out most of the gains made during the year. The index closed at 17,354 on 31 December. It fell more than 1100 points from the intraday high of 18350 recorded on 18 January.

Tracking the momentum there are as many as 17 stocks that recorded Death Cross on the daily charts in the past 2 months.

“As of now, one in every three Nifty 50 stocks has recorded a death cross. A death cross is a moving average set up where short-term moving average falls below the longer-term moving average,” Rupak De, Senior Technical Analyst at LKP Securities, said.

“More specifically, we can say that stock is in the death cross when 50DMA falls below 200DMA. In this type of situation, rallies are best used as the opportunity to cut losses by reducing long positions as stocks remain weak till the death cross persists,” he said.

Investors should now be cautious as most companies in Nifty50 could be impacted amid selling by foreign investors, suggest experts.

A Death Cross is an indicator used in technical analysis to gauge the trend – but it is a lagging indicator and investors should also include other factors when taking a decision to buy or sell a stock based on this crossover.

Stocks that recorded Death Crossover include names like HDFC Ltd, Adani Ports, HDFC Bank, IndusInd Bank, Axis Bank, Bajaj Auto, BPCL, Dr Reddy’s Laboratories, and Hero MotoCorp, etc. among others, data from Trendlyne showed.

“If we talk about the stocks in Nifty50 that have witnessed the death cross then most of them don't have any quality concern while they are under pressure due to FIIs' selling and they may witness sharp recovery once FIIs' selling will be out of the way, therefore, investors should not panic and exit,” Santosh Meena, Head of Research, Swastika Investmart Ltd, said.

What is weighing on markets?

A large part of the selling in the Indian market is weighed down by external factors such as rise in crude oil prices, as well as relentless selling by foreign investors amid rise in rates by the US Fed.

Foreign Institutional Investors (FIIs) have now remained net sellers in the Indian markets for the past three months. In November 2021, FIIs sold to the tune of Rs 39,901.92 crore in the Indian market and it was followed by Rs 35,493.59 crore selling in December 2021.

FIIs sold the most in January 2022, when they pulled out Rs 41,346.35 from the Indian markets.

Also Read: FIIs net sellers in last 3 months; foreign investors may continue to sell in short-term, long-term view remains positive: Experts

On the domestic front, experts feel that investors are moving towards growth stocks so there is a possibility of sectoral rotation, and fear of tightening by the Reserve Bank of India (RBI) policy meeting are some of the factors weighing on markets.  

“After a stellar run in 2021, we are seeing a consolidation in the market with high volatility and anecdotally Q1 of the calendar year remains sideways with a negative bias,” says Meena of Swastika Investmart Ltd.

“The key highlight of current volatility or pressure in the market is heavy selling by FIIs. We are also seeing some sectorial rotation from growth stocks to value stocks,” he said.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)