LIC, L&T, Britannia among large caps in overbought zone

The Indian stock market has been raring to break out again after hitting a new peak earlier this month. However, there are many stocks that are already in the overbought zone given their positions on the technical charts.

We picked two measures—the Money Flow Index (MFI) and Relative Strength Index (RSI)—to check which stocks have entered the overbought zone under both parameters.

The MFI is a technical oscillator that incorporates both the 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 and anything above 70 could be used as a measure to pick candidates that could see a slide in price soon. In contrast, the RSI is a conventional technical measure that uses only the stock price.

We ran an exercise to see which stocks are trading above the 70-mark across both the RSI and MFI methodologies. These stocks in effect could be in the overbought zone and may see a downtrend.

Overall, we get hundreds of stocks but if we filter it down to Nifty 500, we get a pack of 35 companies. Of these, a half are in the small and mid-cap space while the others belong to the large cap basket.

The situation was very different the last time we ran the same exercise a month back when a third were in the small and mid-cap space while the others were large caps.

The new position is a reflection of the scenario three months back when there was an equal split and still starker early this year when there were just a handful of large and mid-caps.

Large caps in overbought zone

If we look at the large-cap space with a market valuation of over Rs 20,000 crore, we have 17 stocks that meet the mark.

These include HDFC Bank, LIC, L&T, Axis Bank, Britannia Inds, Bank of Baroda, Union Bank of India, IOB and YES Bank.

Lower down the order, ACC, United Breweries, Polycab, Bank of India, PFC, Aditya Birla Capital and Central Bank of India and Bank of Maharashtra figure in the overbought zone.

If we compare with a month back, PSU banks feature in both the lists.

Mid and small caps in overbought zone

Mid-cap companies commanding a market valuation of Rs 5,000-20,000 crore and in the overbought group include IRB Infrastructure, IIFL Finance, Lakshmi Machine Works, Hitachi Energy, KEC International, The Fertilisers and Chemicals, Jindal Stainless, JK Lakshmi Cement, Great Eastern Shipping, RBL Bank, Medplus Health, MCX, Kalpataru Power Tran, Equitas Small Finance Bank, Swan Energy, NCC, Rallis India and CSB Bank.