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?
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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).
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