Markets
Are battery stocks charged up for a strong December?
Summary
- Strong delivery volumes and historical data seem to suggest so.
November proved to be a month of significant market fluctuation, with the Nifty50 experiencing more than 10% volatility. Despite these oscillations, the index closed relatively flat at 24,131, down just 0.31% over the month. This kind of market behaviour suggests a tug-of-war between buyers and sellers, with the market struggling to make a clear directional move.
Amid this turbulence, sectors and stocks saw periods of accumulation (buying interest) and distribution (selling pressure). A key tool used to observe these movements is delivery volume, which can provide valuable insights into the underlying market sentiment.
What is delivery volume?
Delivery volume is the number of shares that are traded and then transferred to a new owner at the end of a trading day. It differs from the trading volume, which is the number of shares bought and sold on the same day without any actual transfer of ownership.
Delivery volumes reflect investors’ commitment to holding stocks beyond the short term, and are thus an indication of longer-term sentiment and other potential trends.
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In a highly volatile market, delivery volumes are a valuable indicator of the nature of price movements. A significant increase in delivery volume, particularly during price advances, suggests that large investors or institutional players are accumulating positions, which may be a sign of confidence in a stock. Conversely, an increase in delivery volume during price declines may be a sign that large investors are distributing their holdings, suggesting a lack of confidence.
Sector-wise performance
In the context of the market volatility in November, delivery volumes differed by sector, and the equal weighted index of 64 sectors was analysed to gauge overall trends. This index, which gives equal weight to each sector, ignores the dominance of heavyweights, providing a more balanced view of the market's pulse across various industries.
Among the sectors that saw delivery volumes increase were those associated with batteries. Delivery volumes increased 51% over the 10-month average. This surge suggests investors may be anticipating growth or a positive catalyst for the sector.
Spotlight on battery stocks
Battery stocks garner attention because of their pivotal role in the global push towards renewable energy, electric vehicles (EVs), and energy storage solutions. As the demand for cleaner energy alternatives continues to rise, the battery sector is becoming a critical area of investment.
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Two key battery-related stocks that performed well in November are HBL Power Systems and Kabra Extrusion Technik Ltd. Both made impressive gains, with HBL Power Systems closing up 11% and Kabra Extrusion Technik Ltd up 19%. This outperformance was likely the result of increased investor interest, making them potential candidates for further monitoring.
Historical trends
An interesting tool to assess the potential of these stocks is seasonality analysis, which involves reviewing how a stock has performed during the same period in previous years. Such seasonal trends can offer insights into the likelihood of price movements.
HBL Power Systems stock’s average performance in December has been +13%. This suggests investors may expect the stock to continue to rise in December. The company’s ability to capitalise on the growing demand for energy storage solutions makes it a stock worth keeping an eye on.
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Kabra Extrusion Technik Ltd stock on the other hand has risen by an average of 7.80% during December. The stock trended bullish in November and could maintain its positive momentum in December.
A sector to watch
The battery sector’s strong performance in November and the surge in delivery volumes indicate it could be poised for further growth. Stocks such as HBL Power Systems and Kabra Extrusion Technik Ltd have already demonstrated positive movement and may continue to benefit from the expanding global demand for energy storage solutions, EVs and renewable energy.
For more such analysis, read Profit Pulse.
Note: The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only.
Brijesh Bhatia has more than 18 years of experience in India's financial markets as a trader and technical analyst. He has worked with the likes of UTI, Asit C Mehta, and Edelweiss Securities. He is currently an analyst at Definedge.
Disclosure: The writer and his dependants do not hold the stocks discussed here. However clients of Definedge may or may not own these securities.
