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Informist, Friday, Feb. 14, 2024

MUMBAI – Shares of information technology companies are expected to mirror the benchmark equity indices next week amid lack of major triggers, analysts said. IT stocks are seen declining further, if correction continues next week, a lead research analyst at a domestic brokerage firm said. Analysts expect no surprises or news flows in the week that will affect IT companies in particular. 

The Nifty IT index is likely to see another 1000-point correction next week, Brijesh Ail, head of technical and derivatives at IDBI Capital Markets & Securities Ltd., said. Ail expects the index to correct to 40000 points next week and remain there. All the 10 constituents fell over the week and the index closed 0.01% lower at 41311.15 points on Friday. 

Next week, the index's support is seen at 40643.20 and resistance at 41940.70. This week the IT index was weak, breaking its immediate support of 42000 points, on tensions over tariff hikes by US, Ail said. Shares of L&T Technology services fell 11.4%, making it the worst-hit stock in the IT index this week. Mphasis, Persistent Systems, Coforge, and LTIMindtree were among the worst hit.

The benchmark Nifty 50 index is expected to see a 400-point correction in the initial days of the upcoming week. The market sentiment is extremly bearish on concerns about tariffs by the US, Ail said. The index has fallen 2.7% over this week and has closed at 22929.25 points on Friday. "...from the technical point of view, we (Nifty 50)are making a lower-low cycle. So we have to wait and watch as long as the cycle doesn't change," Ail added.

There were expectations of positive triggers in the market on the joint press conference by Prime Minister Narendra Modi and US President Donald Trump late Thursday but no major positive surprises are there as such. Nifty 50 has broken the crucial support of 22800 points, previously this was the level from where the market took support and there was a good bounce back. However, as it breached the crucial support of 22800 points, another 5-6% correction in the index is seen on an immediate basis.

Most of the IT companies have announced their earnings for Oct-Dec. In a seasonally weak quarter, fewer furloughs and revival in banking, financial services, and insurance drove the sector's growth, barring a few pockets, IDBI Capital said in a report Friday. The brokerage firm retains a positive outlook on Jan-Mar for most of the IT companies, except for few including Cyient and Sonata Software. Cost takeout deals, clients prioritizing high-return on investment engagements, and passing artificial intelligence benefits to clients are expected to support margins, while the increase in fixed-price contracts and stronger offshore mix may drag it down, IDBI capital said. 

Traction in small deals and improved execution cycles has supported the recovery in in discretionary and artificial intelligence-related spendng for Indian IT companies amid the uncertain US macro environment, indicating solid near-term outlook, IDBI Capital said. However, companies that faced project cancellations in the December quarter on continued weakness in technology, media, and telecommunications and retail are expected to continue this in the March quarter. 

Further, the cost-effective generative-AI model 'R1' by Chinese startup DeepSeek is expected to motivate Indian IT companies to try their own similar models, Piyush Pandey, lead analyst at Centrum Broking said. This model is much cheaper compared to the industry giant Open AI, enabling companies to deploy it at lowest costs. The companies are expected to increase their spending on research and development of such models, he added.

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Following are the resistance and support levels for the stocks for next week as per calculations by Informist based on their prices on the National Stock Exchange:

End

US$1 = INR 86.82

Reported by Arya S. Biju

Edited by Deepshikha Bhardwaj

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