Why is Aarey Drugs falling/rising?

Recent Price Movement and Market Context

The stock has been under pressure for the past two trading sessions, cumulatively losing 9.75% in value. On 08-Dec, it opened with a significant gap down of 4.88%, signalling immediate bearish sentiment among traders. Intraday volatility remained limited, with the share price fluctuating within a narrow range of just ₹0.09, ultimately settling at the day’s low of ₹72.61. This constrained trading range suggests a lack of strong buying interest to counteract the selling pressure.

Comparatively, the stock’s performance has lagged behind its sector, underperforming by 2.67% on the day. The Pharmaceuticals sector itself experienced a decline of 2.33%, indicating that Aarey Drugs’ fall is partly reflective of broader sectoral weakness. However, the stock’s sharper decline relative to its peers points to company-specific factors or investor sentiment weighing more heavily on its shares.

Despite the recent setbacks, it is important to note that Aarey Drugs has delivered robust returns over longer periods. Year-to-date, the stock has gained 28.04%, significantly outperforming the Sensex’s 8.91% rise. Over one year, the stock’s appreciation of 18.74% also surpasses the benchmark’s 4.15%. Even over three and five years, the company has outpaced the Sensex by wide margins, with gains of 89.58% and 142.03% respectively, compared to 36.01% and 86.59% for the index. This long-term outperformance highlights the company’s underlying strength despite short-term volatility.

Technical Indicators and Investor Participation

From a technical perspective, Aarey Drugs’ current price remains above its 200-day moving average, a traditional indicator of long-term support. However, it is trading below its 5-day, 20-day, 50-day, and 100-day moving averages, signalling short- to medium-term weakness. This positioning suggests that while the stock may retain some foundational strength, recent momentum has turned negative, potentially deterring short-term traders.

Investor participation has also diminished notably. Delivery volume on 05 Dec was recorded at 11,160 shares, representing a sharp 63.89% decline compared to the five-day average delivery volume. This drop in delivery volume indicates reduced conviction among investors to hold shares, often a bearish sign. Lower participation can exacerbate price declines as fewer buyers step in to absorb selling pressure.

Liquidity remains adequate, with the stock’s traded value supporting a trade size of approximately ₹0.02 crore based on 2% of the five-day average traded value. This level of liquidity ensures that the stock can be traded without excessive price impact, but the current subdued volumes suggest cautious market sentiment.

Conclusion: Short-Term Weakness Amid Long-Term Strength

The decline in Aarey Drugs’ share price on 08-Dec is primarily driven by short-term selling pressure, sectoral weakness, and falling investor participation. The stock’s underperformance relative to the Pharmaceuticals sector and the broader market reflects cautious sentiment among traders and investors. Technical indicators confirm a loss of short-term momentum despite the stock’s position above its long-term moving average.

Nevertheless, the company’s strong year-to-date and multi-year returns highlight its resilience and potential for recovery. Investors may wish to monitor trading volumes and moving average trends closely to gauge whether the recent weakness represents a temporary correction or a more sustained downtrend.

Get 2 full years of MojoOne Premium for only Rs. 12,999. Subscribe for 1 year and we'll add another year FREE. Offer valid for a limited time. Start Saving Now →