By Brijesh Bhatia
The pain for investors continues on D-Street as the Nifty50 index closes below the 23,000 mark ahead of the Union Budget. The broader market, particularly midcap and smallcap stocks, has borne the brunt of the selling pressure. However, the trend is now shifting, with even some of the previously outperforming stocks beginning to witness profit booking. As the selling in the IT sector continues to mount, investors face the pressing question – Where is the opportunity?
A more defensive investment approach is often the right strategy in times of market volatility. While riding a bullish and euphoric market can be enticing, this may not be the best approach when market conditions turn uncertain. So, what are the options for investors in such times?
One sector that stands out for its relative stability and potential for outperformance is Fast-Moving Consumer Goods (FMCG). Let us delve deeper into the NiftyFMCG/Nifty50 ratio chart and analyse why this sector could be the next big winner in the current market environment.
NiftyFMCG/Nifty50 ratio chart analysis
Investors often turn to a ratio chart to understand the relative strength of FMCG stocks against the broader market. The NiftyFMCG/Nifty50 ratio chart compares the performance of the FMCG sector with that of the Nifty50 index. A rising ratio indicates that FMCG stocks outperform the broader market, while a falling ratio suggests the opposite.
Source: TradePoint, Definedge Securities
The current NiftyFMCG/Nifty50 ratio chart shows a bullish trend. The slope of the ratio has turned upwards, signalling that FMCG stocks are starting to gain strength relative to the Nifty50. What’s even more exciting is that the ratio is approaching a previous swing high. According to Dow Theory, a break above this swing high would confirm a reversal in trend, signalling the start of a “higher high – higher low” structure, which is a classic bullish pattern.
Additionally, the ratio’s Relative Strength Index (RSI) has undergone a bullish range shift. As a momentum indicator, RSI has moved into a more favourable range and recently experienced a positive crossover above the 50 mark. This suggests that the FMCG sector will likely continue outperforming the Nifty50 in the near term.
Two stocks in this sector that stand out for potential outperformance are Britannia Industries and Hindustan Unilever Ltd (HUL). Both have shown signs of strength in their price action and technical setups, making them prime candidates for investors looking to play the defensive shift toward FMCG stocks.
Britannia is a household name in India, known for its popular brands like Tiger Biscuits, Good Day, and Britannia Milk. The company operates in the FMCG sector, specifically in packaged foods, and has consistently been a market leader in its category.
Source: TradePoint, Definedge Securities
Britannia’s daily chart shows that the stock is bottoming out, showing signs of a potential reversal. According to Wyckoff’s theory, the stock is currently in the accumulation phase. This is a phase where institutional investors typically buy into the stock after it has reached a low point, or what is referred to as the “spring” or “shakeout”. In this phase, weak hands are shaken out of the stock, and the strong hands accumulate shares at attractive levels.
Britannia‘s stock price recently broke above key resistance levels after forming the spring, indicating that the accumulation phase may be over. As the stock enters Phase D of Wyckoff’s theory, which represents the markup phase, it has the potential to rally higher. This sets the stage for a strong upward move, which could present an excellent opportunity for readers to add this stock to their watchlist relatively early in its recovery.
Hindustan Unilever Ltd (HUL) is another strong player in the FMCG space, with a portfolio of iconic brands such as Surf Excel, Dove, and Lipton.
Source: TradePoint, Definedge Securities
According to Wyckoff’s theory, the daily chart shows that the stock is in the process of completing its accumulation phase. The recent bullish momentum is indicative of a potential reversal, as the stock price has recently experienced forming “spring” (a sharp decline and subsequent recovery). The process of forming the Last Point of Supply (LPS) is the final stage before a significant uptrend begins and will be confirmed in the following momentum. As long as HUL holds above its recent low of 2,253, this level can be considered the “shakeout,” after which the stock may head higher.
Readers should watch for further accumulation in the stock. The current bullish momentum suggests that HUL could potentially be on the verge of a strong upward move.
A defensive play in uncertain times
A defensive investment strategy is key as the market faces continued uncertainty and heightened selling pressure. The NiftyFMCG/Nifty50 ratio chart provides compelling evidence that FMCG stocks are poised for outperformance relative to the broader market. Readers should keep a close eye on stocks like Britannia and Hindustan Unilever Ltd (HUL), which show bullish technical patterns and signal the potential for further gains.
Disclaimer
Note: We have relied on data from http://www.definedgesecurities.com throughout this article. Only in cases where the data was not available have we used an alternate but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Brijesh Bhatia has over 18 years of experience in India’s financial markets as a trader and technical analyst. He has worked with the likes of UTI, Asit C Mehta, and Edelweiss Securities. Presently he is an analyst at Definedge.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article. However, clients of Definedge may or may not own these securities. The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The articles’ content and data interpretation are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.