15 Feb , 2023 By : Monika Singh
The Nifty IT index has risen over 6% year to date compared to a 14% surge in tech-heavy Nasdaq. In 2022, the Covid-19 pandemic accelerated the shift towards remote work and digitisation, leading to an increase in demand for IT products and services, taking the Nifty IT index above 36,800. But as questions arose over the valuation of IT stocks, the index fell below 26,200 in the later half of 2022. But, this year, IT has outperformed the Nifty 50 YTD, owing to better than expected financial results and the recent surge can be due to the Adani-Hindenburg saga. “Investors are finding safety in the IT sector compared to other sectors like banking, in the light of the Adani saga,” said Anita Gandhi, Director, Arihant Capital Markets. So should investors go bullish on IT stocks or remain cautious as it reaches crucial resistance levels? Here’s what analysts have to say:
The trend of Nifty IT remains bullish, according to analysts, since the index has already seen a correction. “The overall trend of the Nifty IT Index is bullish. We observed an ideal correction from the record high last year and saw a downside move of about 30%. Since the start of this year, IT stocks have been performing well. We are bullish on this sector up to the 34,000 level on the higher side, and the bullish view will be valid as long as it sustains above the 26,000 level, according to the technical chart” said Rameshver Dongre, Research Analyst – Equity Research.
Rameshvar Dongre’s top stock picks are Mphasis, HCL Tech, and Eclerx Services Ltd, as those are performing well. “The price-to-book ratio is also lower than the sector PB. Additionally, the chart is technically ready to move upward from its current levels,” he added.
“We continue to believe risk-reward is favourable for India IT. In our view, reasonable valuation limits the downside based on 1) P/E closer to the five-year average, 2) robust OTD TCV performance, and operating margin on the mend as supply issues ebb (Q3 margin underscores this). Our top picks are Tech Mahindra and TCS among Tier-I firms and Coforge and Persistent Systems among Tier-II,” analysts at Elara capital said.
Investors should avoid fresh buy positions as IT stocks approach crucial resistance levels. “Even though Nifty IT stocks have done reasonably well compared to the other sectors mainly due to a pullback in the Nasdaq stocks, currently investors should remain cautious as IT stocks approach crucial resistance levels. Nifty IT has strong resistance at 31104 on the Daily charts. Till this resistance is broken on the Daily charts, investors should avoid fresh buy positions now and wait for support levels of 30018 & 29505 to initiate fresh buy positions,” said A R Ramachandran from Tips2trades.
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