• : March 21, 2021
  • : B. Krishnakumar


Nifty FMCG Index: A Case Study



The Nifty FMCG Index has been a relative underperformer in relation to the Nifty 50 index. Though the FMCG Index has been moving higher, its performance has not kept pace with the benchmark index. Have a look at the daily chart of both index featured below.


 
If you notice, the FMCG Index went into a prolonged consolidation since Dec. 14, 2020 whereas the Nifty 50 index marched higher to make new highs. As a result, the FMCG index has been a underperformer versus Nifty 50.

The more recent price action is more interesting. Both Nifty and the FMCG Index bottomed out on Feb. 26, 2021. But there is an interesting positive divergence between these two indices thereafter. While the Nifty 50 index has made a double bottom pattern near the Feb.26 lows, the FMCG Index has made a relatively higher low and has triggered a swing breakout as well.

This is an early sign of outperformance, but we obviously need more confirmation. Let us take a quick look at the relative strength chart of these two indices. As you may observe, a triple top buy pattern is completed in the chart and the ratio is above its moving average, which is a positive sign.



Let us take a look at the slightly bigger time frame relative strength chart of these two indices. Featured below is the relative strength chart of these two indices in the 0.5% box size.



If you notice, the ratio has bounced off prior breakout level and a double top buy pattern too has been triggered. If you take a look at the trading volume of FMCG stocks, there has been a spike in volume across all stocks.

While there are early signs of this sector bottoming out in the RS chart, it would be better to wait for further confirmation of the sustenance of this outperformance. Keep this sector in your watchlist and FMCG stocks could provide some interesting trading opportunities if the Nifty 50 manages to resume its uptrend.