Which stocks can bounce back from oversold zone? Here’s what technical charts show

The Indian stock market has gyrated to the tune of a faster-than-expected tapering signal from the US Federal Reserve and uncertainty from the impact of the new coronavirus strain Omicron. Benchmark indices have corrected 10% from the peaks in October, and analysts expect another round of bearish trajectory is around the corner.

We sought to identify a few potential bounce-back candidates given their positions on the technical charts.

In particular, we considered the Money Flow Index (MFI), which 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 the share price. The index figures vary between 0 and 100, and anything below 20 could be used as a measure to pick bounce-back candidates.

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

In the large cap space, which includes companies with a market valuation of over Rs 20,000 crore, just four stocks meet the mark. These are the country’s top healthcare group Apollo Hospitals Enterprise, telecom tower firm Indus Towers, insurtech platform Policybazaar’s parent PB Fintech and drugmaker Ipca Labs.

In the mid-cap basket, there are nine stocks that pass the filter. These are Sanofi India, Aditya Birla Sun Life, WABCO India, CAMS, IIFL Wealth Management, IIFL Finance, Akzo Nobel India, Sundaram Clayton and Kama Holdings. All these stocks command a market valuation of Rs 5,000-20,000 crore.

Lower down, in the small-cap space, around 150 stocks fit in with the oscillator range for the MFI. Filtering that list to those with a market cap of Rs 1,000 crore or more throws up companies like Gujarat Pipavav Port, JSW Holdings, KSB, Hawkins Cookers, Kirloskar Brothers, Pilani Investment, Wardwizard Innovation, CARE Ratings, Shaily Engineering, Cigniti Technologies and Omaxe.

A few notches down in the pack of companies with a market cap of Rs 500-1000 crore there are five more names: Mishtann Foods, Deccan Cements, KSE, Niyogin Fintech and Finkurve Financial.