Sector Spotlight: IT stocks in focus today as correction seen after frenzied buying - opportunity now to make fresh position, says analyst

The IT sector is in focus today as Nifty IT index is down by over 2 per cent on the intraday basis. Nifty IT stocks dragged markets on the weekly expiry day. Nifty50 was down over 100 points or 0.59 per cent at 12:30 pm and was trading at 18,157.95. 

Meanwhile, the BSE Sensex, was trading at 60,820.98, down 439 points or 0.72 per cent. 

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TradeSwift Director Sandeep Jain sees this phenomenon as a consolidation in overall markets while acknowledging that the correction in IT space was dragging the markets down. He expects Nifty50 to trade in a range between 18,000 and 18,600 till Diwali. 

Nifty IT was trading at 35,986.05. In the 10-share index all stocks declined around this time. The biggest losers were MindTree Limited, Coforge Limited and L&T Technology Services Limited which were down 6.41 per cent, 5.13 per cent and 4.27 per cent respectively. 

HCL Technologies Limited, Tech Mahindra Limited and Wipro Limited also lost between 0.82 and 1.26 per cent.  

In the Nifty500 segment Sonata Software was among top IT sector losers. It was down almost 6 per cent on the NSE around this time and was trading at Rs 863.40.  

"Certain pockets, where valuations have become lofty and have seen frenzy buying in small and midcap indexes, are seeing a correction," Reuters report said quoting Saurabh Jain, assistant vice president of research at SMC Global Securities. 

"Largely, IT companies have reported good set of numbers. But the valuations are rich in the sector and there is a good amount of room for correction," this report said. Index heavyweight Tata Consultancy Services Limited (TCS) was down 1.7 per cent and was trading at Rs 3548.  

"Sustained selling by institutional investors indicate that smart money regards the market as overheated and over-valued," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. 

Technical Analyst Nilesh Jain does not see it as a major correction and sees this as an opportunity to make fresh moves in certain stocks. The Nifty IT index was trading at 36,076.15 around this time. 

Jain, who is Assistant Vice President (AVP), Equity Research Technical and Derivatives at Centrum Broking said that the index has made a double top with a strong base formation at levels between 34,000 and 37,500. The level around 37,500 is a strong hurdle. The index witnessed a swing high at 37,823 which is also its 52-week high, Jain said. 

The AVP picks two stocks that have a high return potential with favourable risk-to-reward ratio at current levels. 

Buy Infosys – The stock was trading at Rs 1755 around this time, down by almost Rs 47 or 2.63 per cent from the Wednesday closing price. Buy at levels around Rs 1720-1725, he said. The support is below Rs 1700 and price targets are Rs 1820 and Ra 1850. 

Buy Tech Mahindra – This stock was trading at Rs 1516, lower by Rs 23 or 1.5 per cent from the Wednesday closing price. The stock has corrected from its 52-weeks high levels of Rs 1576.50. Buy at Rs 1450 with a stop loss of Rs 1360. The target price is Rs 1550.