Can Fin, Bajaj Auto, Syngene among stocks in the oversold zone of MFI chart

The Indian stock market has been battered over the last one week after the bulls failed to keep the indices above the psychologically critical marks due to weakening global sentiment after another steep interest rate increase by the US Federal Reserve.

The Reserve Bank of India, which is to meet this week, is also expected to follow suit as inflation in the country, induced by fuel prices and commodity price increases at large, has been above its comfort levels.

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

Companies with a market cap over Rs 20,000 crore, or large cap stocks, and figuring in the oversold zone include Bajaj Auto, Indian Oil Corp, IndiGo parent InterGlobe Aviation, Syngene International and Bayer Cropscience.

Looking a step lower down at companies with a market cap in the Rs 5,000-20,000 crore bracket, or the mid-cap space, that could be ripe for a buy include Prestige Estates, Hitachi Energy India, Sanofi India, Bajaj Electricals, G R Infraprojects, Medplus Health, Brightcom Group, Can Fin Homes and Restaurant Brands.

In the small-cap space, Gujarat State Fertilisers and Dhani Services are in the oversold zone.