Bharti Airtel, Asian Paints, Bajaj Finserv among stocks in the oversold zone of MFI chart

The Indian stock market has been on a retreating trend after hitting a new peak last month with the correction in the market taking the indices more than 5% below the all-time highs just weeks before.

Although retail inflation in the country has eased, the Reserve Bank of India is expected to continue with a hawkish stance to keep any further flare-up in prices in check.

Investors looking at charts and price and volume patterns have various parameters to decide whether a stock is ripe for the pick or is showing signals of weakness and is best left untouched.

We considered the Money Flow Index (MFI), which is a technical oscillator that incorporates both 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. Anything below 20 could be used as a measure to pick bounce-back candidates. Stocks with a value over 80 are considered in the overbought space and therefore may see a selloff.

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

Large, mid and small caps in oversold zone

If we look at the Nifty 500 pack of companies that could be ripe for a pick, we get a handful of companies across their market capitalisation.

Companies with a market cap over Rs 20,000 crore or large cap in nature, and figuring in the oversold zone include Bharti Airtel, Asian Paints, Bajaj Finserv, Biocon, Gland Pharma and Motherson Sumi Wiring.

Looking a step lower down at companies in the mid- and small-cap segment that could be ripe for a buy include: Galaxy Surfactants, Medplus Health and Vaibhav Global.