Why Hero Honda, Tata Consumer and Ashok Leyland could be ‘buy’ candidates

The Indian stock market has made a sharp bounce-back after a deep correction over the last three months and pulled up further on Thursday that took the indices just 3-4% below their peak.

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 picked a metric called Williams %R, which is a momentum indicator that can signal bullish or bearish trends for a stock.

Developed by Larry Williams, Williams %R is the inverse of the Fast Stochastic Oscillator. Its reading varies between 0 and -100, with 0 to -20 indicating an overbought range and -80 to -100 being seen as an oversold zone.

We ran an exercise to see which mid-large cap stocks are in the bullish zone as per Williams %R. In particular, we looked at stocks with market cap of over Rs 5,000 crore, with the William %R just crossing over -80 mark from the previous score at that level. We spotted eight such stocks which could be set for a trend reversal.

Broadly, this set is dominated by financial services and automobile companies. Companies from other sectors include those from business services, consumer products, chemicals and IT.

Filtering them from the top end of their market cap, we get names like Tata Consumer, Hero MotoCorp, Ashok Leyland, JM Financial, Aavas Financiers, GHCL, SIS and Zensar.

Lower down the order in the small-cap pack there are over 175 companies. These include names like ESAB, Tata Coffee, Tega Industries, Dhanuka Agritech, PTC Industries, Supriya Lifescience, Action Construction Equipment, J Kumar Infraprojects, HOEC, Tips Industries, Jain Irrigation, Electrosteel Castings, Seamec and Subros.

Further down, there are stocks like Indo Rama Synthetics, Chemcon Speciality Chemicals, Satia Industries and DFM Foods.