IT Stocks Outlook
Profit booking may continue next week
This story was originally published at 19:33 IST on 20 September 2024
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MUMBAI – Shares of information technology companies are expected to trade with a negative bias next week on account of profit booking by investors, following a strong rally in the sector in recent months, according to analysts. The profit booking started ahead of the US Federal Reserve's meeting on Wednesday, in which it started its rate reduction cycle. Since June, information technology stocks have been on a bullish run, with the Nifty IT index gaining nearly 30% till August.
This week, the Nifty IT index closed 2.7% lower at 42204.40. All constituents of the information technology index ended lower on a week-on-week basis, with shares of L&T Technology Services falling the most, followed by those of Tata Consultancy Services. Compared to the Nifty IT index, the benchmark Nifty 50 and the Sensex gained 1.7% and 2%, respectively.
"This seems like regular profit booking, because the information technology space had rallied significantly ahead of the Federal Reserve policy meeting... Generally, before the event itself, positions get built up, then the unwinding happens after the event," said Ruchit Jain, a lead analyst at 5paisa. "On any correction, usually we see retracement of 23% of the entire upmove. That level for the Nifty IT index is seen around 40700, which is currently above the 42000 level. So we might see some relative underperformance in the Nifty IT index." A retracement refers to the temporary reversal of an overarching trend in a stock's price. Distinct from a reversal, retracements are short-term periods of movement against a trend, followed by a return to the previous trend.
"This should just be seen as profit booking or a correction within an uptrend and not a trend reversal in information technology space. Investors should look for a buy on dip opportunity when it comes around the support level," said Jain. Next week, the Nifty IT index support is seen at 41303.70 and resistance at 42825.60.
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Following are the resistance and support levels for the sector's key stocks for next week, as per calculations based on their prices on the National Stock Exchange:
| Company | Price | Week-on-week change in % | Resistance | Support |
|---|---|---|---|---|
| HCL Technologies | 1760.05 | (-)2.90 | 1793.90 | 1704.50 |
| Infosys | 1905.75 | (-)2.00 | 1943.70 | 1848.50 |
| L&T Technology Services | 5472.95 | (-)5.30 | 5586.60 | 5399.60 |
| LTIMindtree | 6373.10 | (-)0.70 | 6501.50 | 6272.20 |
| Persistent Systems | 5355.05 | (-)0.10 | 5496.90 | 5241.10 |
| Tata Consultancy Services | 4284.90 | (-)5.30 | 4384.20 | 4177.80 |
| Tech Mahindra | 1622.05 | (-)2.10 | 1658.20 | 1564.40 |
| Wipro | 539.10 | (-)2.10 | 546.70 | 527.20 |
| Nifty IT | 42204.40 | (-)2.70 | 42825.60 | 41303.70 |
| Nifty 50 | 25790.95 | 1.70 | 26111.60 | 25266.30 |
| S&P BSE Sensex | 84544.31 | 2.00 | 85649.00 | 82635.30 |
End
Reported by Darshan Nakhwa
Edited by Akul Nishant Akhoury
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