Whereas some merchants consider in bottom-up inventory selecting, the place you concentrate on particular person firm fundamentals first, others swear by the top-down method. The highest-down method begins with broader sectors earlier than narrowing all the way down to particular person shares inside these sectors.
Beginning with the sectors, analysing the outperformers and underperformers is step one a dealer follows. Some merchants concentrate on outperforming sectors, investing in persevering with momentum, whereas others goal underperforming sectors, hoping for a reversal or restoration. Each methods have their very own danger profiles—outperforming sectors have a tendency to hold decrease danger as a result of ongoing momentum. In distinction, underperforming sectors carry increased dangers as you spend money on a turnaround with little or no present market assist.
On this article, we take a look at an underperforming sector that presents a probably profitable alternative for risk-tolerant merchants – the media sector.
Regardless of its poor efficiency lately, allow us to discover why this sector could current a possibility for these prepared to take dangers.
Media Lags
During the last 5 years, the Nifty Media index has considerably lagged behind the broader market. Whereas the Nifty 50 index has rallied greater than 100% throughout this era, the Nifty Media index continues to be buying and selling at ranges seen in 2019 regardless of a thriving broader market.
This stark underperformance raises a vital query: is the media sector primed for a rebound, making it a beautiful goal for merchants in search of worth in beneath appreciated shares?
To discover this risk, a technical evaluation will assist us study the Nifty Media/Nifty 500 Ratio Chart together with key particular person inventory patterns inside the sector.
These insights might provide early indicators of restoration, guiding traders on whether or not a turnaround is likely to be on the horizon for media shares.
Nifty Media vs. Nifty 500 Ratio
One of many first steps in assessing whether or not the media sector has any potential to outperform is evaluating it in opposition to the broader market. The Nifty Media/Nifty 500 Ratio Chart is a priceless instrument for this evaluation. This chart exhibits the Nifty Media index efficiency relative to the complete Nifty 500 universe of shares.
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The weekly ratio chart exhibits that since 2017, the Nifty Media index has constantly underperformed the broader market. Nonetheless, a constructive divergence is seen on the Relative Energy Index (RSI) for the primary time in seven years. This divergence signifies that the momentum of the sell-off could also be slowing down, suggesting that the bears could also be tiring.
In less complicated phrases, the media sector is likely to be at a turning level. The constructive divergence on the RSI means that the downtrend might be dropping steam, which is usually an early indication {that a} potential reversal might be on the horizon. As any skilled dealer is aware of, recognizing the early indicators of a development reversal generally is a worthwhile technique, however it comes with the next degree of danger.
Every day P&F chart
One other instrument we are able to use to evaluate potential reversals is the point-and-figure (P&F) chart. This technical charting technique focuses purely on value motion, filtering out time, and quantity fluctuations.
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The every day P&F chart of the Nifty Media index exhibits that it has lately turned upward, supported by a rising trendline. Whereas a breakout above the two,100 degree nonetheless doesn’t affirm this transfer, the preliminary indicators of reversal are seen. The index shows early bullish alerts that align with a possible sector-wide restoration.
Momentum indicator: DeMAP
We contemplate the Definedge Momentum and Efficiency (DeMAP) chart, a momentum-based indicator that helps assess whether or not a sector or inventory is in an uptrend or downtrend. DeMAP basically measures the relative energy of an asset in comparison with its historic efficiency, serving to determine areas of energy or weak spot.
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The DeMAP chart displays that the Nifty Media index has lately proven a pointy transfer from the “water” to the “sky,” signalling a robust momentum shift. Whereas this sector has traditionally lacked efficiency, this shift in momentum might point out that the media sector is primed for a possible efficiency enhance if the upward momentum continues.
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Whereas this chart doesn’t assure that the Nifty Media index will outperform the broader market, it does recommend that the circumstances are proper for a reversal. If momentum continues in the precise route, this sector might probably see a powerful rally, making it a danger value contemplating for contrarian merchants.
Shares to Watch
Whereas the Nifty Media index exhibits promise, it’s important to take a look at particular person shares inside the sector that might profit from the general development.
Based mostly on technical evaluation and patterns, two shares within the media sector stand out as potential candidates for increased efficiency.
Solar TV
Solar TV, a number one participant within the Indian media house, is exhibiting bullish indicators primarily based on P&F charting.
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The P&F every day chart (0.25% X 3) exhibits a Bullish AB=CD harmonic sample, indicating a possible reversal. That is additional confirmed by the Double High Breakout (DTB) sample, a typical bullish sample in technical evaluation.
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The bullish reversal happens close to a earlier excessive, marked by a robust horizontal trendline indicating that the inventory could flip from the assist zone. The reversal in Solar TV might assist the broader Nifty Media index, contributing to the sector’s potential restoration.
Saregama
Saregama, one other distinguished media firm in India, has proven robust potential over the previous few years, with its inventory hitting new all-time highs earlier than the latest market correction.
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On the weekly chart, the retracement from these highs has been accompanied by lowering volumes, signalling that the autumn lacks energy and might be a possibility for sensible cash to build up the inventory.
Furthermore, the inventory is at present taking assist on the 50-week exponential shifting common (50WEMA) channel, which has confirmed to be a big demand zone for it.
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So long as Saregama holds above this degree, it might probably arrange a robust rebound, particularly if the broader market favours media shares.
Turnaround for media?
The Nifty Media index has underperformed the broader marketplace for a number of years, however technical indicators such because the constructive RSI divergence, the Level and Determine chart reversal, and the DeMAP momentum shift recommend that this sector might be on the verge of a restoration.
Regardless of the upper dangers related to investing in an underperforming sector, there are indicators that the media sector could lastly flip a nook. Shares like Solar TV and Saregama seem poised for potential reversals, and if the broader momentum within the sector holds, these firms might assist drive the Nifty Media index increased.
Be aware: The aim of this text is just to share attention-grabbing charts, knowledge factors and thought-provoking opinions. It’s NOT a advice. If you happen to want to contemplate an funding, you’re strongly suggested to seek the advice of your advisor. This text is strictly for educative functions solely.
As per SEBI tips, the author and his dependents could or could not maintain the shares/commodities/cryptos/another belongings mentioned right here. Nonetheless, purchasers of Definedge could or could not personal these securities.
Brijesh Bhatia has over 18 years of expertise in India’s monetary markets as a dealer and technical analyst. He has labored with the likes of UTI, Asit C Mehta, and Edelweiss Securities. Presently he’s an analyst at Definedge.
Disclosure: The author and his dependents don’t maintain the shares mentioned right here. Nonetheless purchasers of Definedge could or could not personal these securities.
