Infosys, HDFC Bank Drawdown Risk After Momentum Fades

Momentum stocks in India are losing steam. Infosys and HDFC Bank have pulled back from their recent peaks. Wipro has also retreated.

The reversal follows a period where select large-caps outperformed the broader market. That setup often leads to a snapback when buying pressure exhausts. AlphaScala's proprietary scoring system gives low-to-moderate conviction on these names. HDB scores 40 out of 100, labeled Mixed. INFY scores 57, Moderate. WIT scores 46, Mixed. These readings indicate the recent upward momentum was not supported by strong earnings momentum or institutional flows.

The risk of a deeper drawdown depends on how the unwind unfolds. Momentum strategies amplify moves in both directions. A cluster of algorithm-driven sell orders can turn a routine pullback into a cascade, especially when liquidity thins ahead of an expiry. Friday's weekly options expiry on the Nifty coincides with a heavy concentration of open interest in call strikes near the current market level. That concentration can cap any intraday relief rally.

On the flip side, a sudden catalyst could reverse sentiment. A strong macroeconomic data print or a corporate surprise would fit the bill. No such catalyst appears on the near-term calendar. The next major scheduled event is the start of earnings season, still weeks away.

Global cues have turned less supportive. The dollar index has firmed, historically pressuring emerging market flows. Domestically, the RBI's liquidity absorption has raised short-term rates, making it more expensive to hold leveraged momentum positions.

One of the trending stocks faces a company-specific overhang after an auditor flagged a Gymkhana land issue. That adds idiosyncratic risk on top of the sector-wide unwind.

The drawdown is part of a rotation out of high-beta names into defensives. FMCG and pharma stocks have held up better, a classic sign of risk-off positioning. The options market is signaling caution, with implied volatility rising for the week.

The 50-day moving average on the Nifty, near 24,250, is the level to watch. A decisive close below that would confirm the technical damage. A rapid volume-backed bounce, by contrast, would argue the selloff was routine profit booking.