Over the last three weeks Sun Pharmaceuticals has been doing its best Deutsche Bank impression, losing roughly a third of its value and trading at levels not seen since March 2013.
As the largest component of the Nifty Pharmaceuticals Index this performance has been a major drag on the index, however, equally-weighted charts can offer us a much better read of the sector’s health.
The chart below clearly shows the relative weakness in Sun Pharma and its effect on the Nifty Pharmaceuticals Index. Looking at this cap-weighted version of the index alone may lead one to conclude that there’s little opportunity on the long side of this sector, but as you’ll see in the next chart, that couldn’t be further from the truth.
Click on chart to enlarge view.
Below is the equally-weighted Nifty Pharmaceuticals Index versus the cap-weighted version breaking out to new all-time highs after consolidating for most of the year. What this is signaling to us is that the stocks within the sector are faring a lot better than the cap-weighted index’s absolute performance is suggesting.
When we see this type of massive out-performance from the equally-weighted index, it tells us that we need to be looking at the individual components for potential opportunities.
Using this information we’ve done a deep dive into the Pharmaceuticals Sector and have identified the stocks showing relative strength and offering trading opportunities.
Thanks for reading and let us know your thoughts!