The Nifty Infrastructure Index is trading at its sharpest discount to the key 200-day moving average in the last two years due to a decline in the share price of Larsen & Toubro.
The 25-stock index, which fell nearly 6 percent in June, is the biggest sectoral loser so far this month. It is trading more than 8.5 percent below the 200-day moving average.
The scrip of the engineering and construction company, which has over one-third weight on the index, has dropped over 7 percent so far this month.
“There can be a mean reversion towards 3,500 after it [the index] completes a corrective wave near to 3,050 levels,” said Shrikant Chouhan, senior vice-president, technical research, at Kotak Securities.
The Nifty Infrastructure Index comprises companies belonging to these five sectors:
- Construction—Has a weight of 40.33 percent
- Energy—Has a weight of 25.9 percent
- Telecom—Has a weight of 17.88 percent
- Services—Has a weight of 10.71 percent
- Industrial Manufacturing—Has a weight of 5.18 percent
Analysts tracked by Bloomberg have pegged the return potential for L&T at more than 25 percent over the next year. For the index, the return potential stands at nearly 27 percent.
“Our advice is to start investing in good and leader companies with a view of three to six months,” Chouhan said.