IT stocks are ‘buy on dips’. Here's why

Traders took profits off the table in technology shares last week after a strong run over the last few months but the recent underperformance might be a blip. Technical analysts are advising clients to buy the top four technology stocks — TCS, Infosys, Wipro and HCL Tech — on dips. The BSE IT index has gained 99.6% from its March low while the Sensex has gained over 55% from its March lows. Analysts feel the Nifty index is likely to find strong support at 11,400-11,600. ET spoke to four analysts on the road ahead.GAUTAM SHAHFOUNDER, GOLDILOCKS PREMIUM RESEARCHWill the IT sector continue its recent underperformance? The uptrend in the IT sector is a structural change with fundamental positives and excellent chart set-ups. 22,500 on the NSE IT index was a major resistance from where a correction has been seen. It got a bit overbought and became a crowded trade that triggered the pullback last week. This is a buying opportunity for a move back to 22,500-22,700 and higher. Investors who got in at lower levels should simply stay put. All the top four names have positive set-ups and could be bought into. Where is the Nifty headed? Every dip in the last three months has been bought into. The market is going through a “V” shaped recovery that is unlikely to end till the Nifty moves into the 12,100-12,250 area. We see a strong base in the 11,600-11,700 area that is unlikely to be breached. Breadth indicators suggest that the market is far away from being euphoric and is also light on leverage. We stay positive for the near term. The sectoral themes to look forward to are IT, pharma, cement and chemicals while metals could be the dark horse.SHRIKANT CHOUHANEXECUTIVE VP-EQUITY TECHNICAL RESEARCH, KOTAK SECURITIESWill the IT sector continue its recent underperformance? For Nifty IT, the view is still strong. The results season is almost over for large-cap IT companies and so we are seeing profit taking. I am not expecting Nifty IT to fall below 20,000. The support is at 19,500- 20,000; and on the higher side we can again see the level of 24,000. The IT index will see a sideways consolidation for the next few weeks in the range of 20,000 to 22,500, and after this consolidation we can expect a rally till 24,000. All the stocks are trading at the highest point of the current rally, but with a view of next 3-6 months, we are bullish on Infosys along with Tech Mahindra and L&T Tech. Where is the Nifty headed? We were expecting some correction after the index hit a psychological level of 12,000. Some more correction is not ruled out. Probability of the index hitting 11,400-11,500 is very high but after that we expect the index to move towards 12,300-12,400. The strategy should be to buy on dips. We need to focus again on financials along with FMCG stocks.ABHILASH PAGARIASENIOR MANAGER, EDELWEISS ALTERNATIVE RESEARCHWill the IT sector continue its recent underperformance? Indian IT index has gained around 92% from its March lows and has even outperformed the US Tech Index – Nasdaq — by around 23%. After strong quarterly results by key companies, the index is witnessing profit taking at multiyear high levels. In the near term we may see some bout of correction led by profit taking as various quantitative Indicators are in overbought territory; while our longer-term view remains bullish. For the medium-term, one can look to accumulate Tech Mahindra and HCL Tech on dips. Where is the Nifty headed? October has always been a strong month and the Nifty has gained 5% so far, the upward momentum remains intact until we close below the key support levels of 11,440. In this expiry we might consolidate at these levels as sustaining above 12,000 can be difficult.ASHISH CHATURMOHTAVICE-PRESIDENT, SANCTUM WEALTH MANAGEMENTWill the IT sector continue its recent underperformance? The IT sector is in a long-term uptrend and one can buy on dips as new deal wins, execution and margin stability will keep the momentum going. Infosys, TCS, Info Edge, CoForge can be looked at. Where is the Nifty headed? After an 11% upmove, profit booking was expected. Now 11,600 is the immediate support, holding above which expect 12,000 to be crossed and head towards 12,250 and then possibly to all-time high of 12,428.

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