200-DMA of BSE 500 companies rises but gains may not be broad-based

97% of companies were above mark when indices hit all-time high in Oct '21, against just over 55% presently

More than 280 of the BSE 500 stocks are trading above their 200-day moving average (DMA), at present, against 254 as of September last year. And, 151 of them are trading 10 per cent above their 200 DMA.
 
The 200-DMA — nearly a year’s average of closing prices — is analysed by traders to understand the market sentiment. A fall below these levels indicates a weak trend. Meanwhile, the Sensex and Nifty50 are trading 6 and 5.7 per cent above their 200-DMA.
The current trend reveals that gains are a bit more broad-based but nothing to write home about, considering the indices are near their all-time highs.
 
"At these levels, it should be much more. Ninety-seven per cent of the top 500 stocks were above 200 DMA when indices hit their highs in October 2021. A little over half of BSE 500 trading above 200 DMA is a little on the lower side. Ideally, anywhere between 65-75 per cent of the stocks should be trading above  200 DMA," Deepak Jasani, head of retail research, HDFC Securities.
"It gives an indication that a small set of stocks are still pulling up the indices with the broader market languishing. That's why cash volumes are also languishing," said Jasani.
 
Value buying is attributed as one of the reasons for the gain in some of the stocks trading above their long-term average prices.
 
"Due to sharp corrections, the valuation became attractive. The recovery is not seen in high PE stocks. In the first half of December many mid-cap stocks corrected and it was sharp. And in the last week or so there has been some recovery. In the last three months, the in rally markets were a narrow one where the index outperformed and mid-caps and small-caps corrected," said AK Prabhakar, head of research, IDBI Capital.
 
The stocks trading well above their 200 DMA also reveal which sectors and stocks are in favour at the moment.  Many public sector undertakings (PSUs) and PSU banks are trading above their 200-DMA.  UCO Bank is trading 130 per cent above its 200 DMA. Mazagon Dock, Punjab & Sind Bank and Rail Vikas Nigam are trading 80 per cent above the mark.
"  PSU banks were trading at a steep discount to their book values. The credit growth has improved and the NPA cycle is going down," said Chokkalingam.
 
Stocks like FSN E-Commerce Ventures, Gland Pharma, and Brightcom are trading 30 per cent or more below their 200 DMA.
 
"New age companies, despite the fall, are not showing valuation comfort. And there is no earnings visibility in the near term," said G.Chokkalingam, founder, Equinomics.
CE Infosystem and Intellect Design Arena are trading below 20 per cent of their 200 DMA.
 
" IT has been neglected for some time as revenue and margin visibility has not improved,"   said Jasani.