Indian Benchmark Indices Overbought, But Buy Select Stocks On Dips: Analysts

The benchmark indices are in the overbought zones, but investors must take advantage of brief bursts in select stocks to capitalise on opportunities, according to analysts.

The relative strength index for the NSE Nifty 50 and the small-cap stocks are at extreme levels, according to Gaurav Bissa, vice president at Incred Equities. "RSIs for small caps are at extremely high levels, about 82–83 levels... This is the level from which we have seen some corrections coming in."

This will not result in a crash but there is always a correction when RSI goes to such extreme zones, Bissa said.

The current momentum is characterised by short bursts rather than sustained activity. Investors should dive in and take advantage of these brief bursts in order to capitalise on opportunities, according to CK Narayan, founder of NeoTrader. "The current market exhibits significant momentum."

The benchmark indices ended the first day of 2024 a little changed on Monday as market participants indulged in profit booking after both indices hit record highs.

It is time to continue buying as it is going to be a big year for India in 2024, according to Chakri Lokapriya, managing director of TCG Asset Management Co.

Assembly elections and the low inflation rates, along with low interest rates, could spur capital spending by large industrial groups in India, Lokapriya said. "Along with the expected recovery in U.S. discretionary spending, we will see a pick-up in both international and domestic markets."

For Nifty, 21,800 is the level to watch out for and if that is taken out, probably more upside can be seen, Gaurav Bissa said.

"I would be inclined to take a long position in Bank Nifty, but would wait for a small dip," Bissa said. Bank Nifty is trading in a very lucrative buying area and would not create shorts, he said.

Auto stocks are looking strong and have shown continuous outperformance, Bissa said. "They (market participants) are just looking at temporary short positions because of profit booking... Overall, I'm expecting them to do well in the next few trading sessions."

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