SUNPHARMA does a dead cat bounce, it's still too early to buy into it

SUNPHARMA delivered stellar performance today. On a longer term basis, investors in SUN PHARMACEUTICAL IND L made -0.03% per day. Tuesday's performance of +2.97% was a significant outperformance compared to it's daily average.

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Buy-and-Hold investors in SUNPHARMA experienced a maximum drawdown of -38.51% over the last three months. It returned -33.2% during this strong down trending period. There were both Long and Short signals during this period, where the short signals were significantly more profitable than the long signals. The net profit from Short signals was +22.56%.

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SUNPHARMA has been underperforming the NIFTY-50 index in recent time, after having outperformed till 25 Feb, 2016. Over the last 2 years and 12 months, SUNPHARMA underperformed the NIFTY-50 index on 52% days.

SUNPHARMA returned losses on 64% days in the last three months. During this time, it delivered on average -0.64% per day. It delivered it's worst daily return of -7.55%, during this period, on Monday, 3 Dec, 2018. There was initially a bullish trend during this period which started on 12 Oct, 2018 and went on till 16 Oct, 2018. The bullish trend returned +2.7% to investors. This was followed by a bearish trend that started on 22 Oct, 2018 and ended on 26 Oct, 2018. This bearish trend lost -9.44% of investor capital.

On monthly basis, SUNPHARMA delivered losses in more months over the last year, than profits. SUNPHARMA delivered profits less regularly than NIFTY-50 index. SUNPHARMA significantly outperformed NIFTY-50 index in Jun 2018, when it returned +17.49% compared to +6.56% returned by NIFTY-50 index during it's best month in the last one year - Jul 2018. SUNPHARMA had a longer winning streak of losing months than NIFTY-50 index. It went down in 4 straight months (from Sep 2018 to Dec 2018) during which period it delivered -39.94%. It is interesting to note that both SUNPHARMA and NIFTY-50 index significantly outperform during months when quarterly/annual results are announced.

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SUNPHARMA is becoming less volatile overall. In comparison, the NIFTY-50 index is seeing a fall in volatility. During the last three months, there was a significant surge in SUNPHARMA's volatility from 19 Sep, 2018 to 11 Dec, 2018. While there was a significant fall in the NIFTY-50 index's volatility from 21 Sep, 2018 to 5 Dec, 2018.

Advanced/professional short-term investors should note that SUNPHARMA has positive skewness in it's return distribution. This indicates that investors can expect SUNPHARMA to make attempts to recover from drawdowns quickly. Which makes SUNPHARMA a good candidate for momentum based trading on short-term bullish trends or counter-trends.

Investors trading in SUNPHARMA derivatives at this moment can consider 'Long Straddle' options strategy to receive better risk-adjusted returns.

NIFTY-50 index has more chance of extreme outcomes than SUNPHARMA. Therefore, NIFTY-50 must receive a lower allocation than SUNPHARMA in your portfolio. SUNPHARMA usually has shorter drawdown period than the NIFTY-50 index.

On a general note (since you are interested in SUNPHARMA), three large cap instruments that deserve special mention are HINDUNILVR, TECHM and DMART. They have all outperformed the market and must be closely watched for investment opportunities.