What does Nifty's surge above 200-DMA mean for investors?

Mumbai: The recent rebound in the stock market has pushed the Nifty above its 200-Day Moving Average (DMA)-a long-term trend indicator-signalling a bullish undertone among blue chips. Beneath the surface, the optimistic mood may not be as widespread, but it's more sanguine than it was a couple of months ago.

Of the top 500 stocks, 226 are trading above 200-day moving averages, according to Axis Securities. When a stock or an index is above its 200 DMA, it's said to be in a long-term uptrend and vice versa. It's the average price of a stock or index over the last 200 trading days, which is close to a full trading year, helping investors get a better view of the price trends over a longer period. Nifty's 200-DMA is at 24,631, about 0.9% below Friday's closing level of 24,853.

Though the stocks that are above 200-DMAs are still less than 50% in Nifty 500 index, it's higher compared to 95 in March and 45 in February, a sign of gradually improving investor confidence with a tinge of caution.

"The investor sentiment has improved significantly since February-March as the broader market has witnessed renewed buying interest, but the recovery is gradual as investors remain selective buyers focusing on companies that delivered good results," said Ruchit Jain, vice president- head technical research at Motilal Oswal Financial Services.

Agencies

Of the stocks trading above 200- DMA, 62 are trading 10-20% away from the average price and 15 are at a 20-30% distance, while 138 are as much as 10% away. 11 stocks are trading 30% above their 200-DMA, according to Axis. Similarly, 162 stocks are up to 10% below the 200- DMA, 69 are 10-20% below the level, and 25 are over 20% away.

In bullish conditions, fewer than 50% of the top 500 stocks below the 200-DMA would not be a reason to celebrate, but given the lingering concerns over the economic fallout of tariffs and uncertainty over corporate earnings, optimists would consider this number acceptable.

“Despite the muted fourth quarter earnings, a greater number of stocks out of the NSE 500 universe are trading above the 200-DMA compared to February and March, indicating investor confidence is returning on the street,” said Rajesh Palviya, head of technical and derivatives, Axis Securities.

The Nifty 500 Index slumped by nearly 8% in February but bounced back in March and April, gaining 7.3% and 3.2%, respectively. The Nifty Midcap 150 and Smallcap 250 indices have risen 17.6% and 20.2%, respectively, from their lows this year on February 28 and March 3.

“Mid-caps moved up when domestic investors bought, and large-cap names performed well when foreign investors began purchasing after a period of aggressive sell-off, so there has been rotation among the stocks,” said Jain.