Investors should take a contra bet in IT sector: Dharmesh Shah

economictimes.indiatimes.com:

«Again, if you look at the market breadth where 70% of the stocks are now trading above the operating average that again gives us the confidence that the current breakout should not get fizzled out in months,» says Dharmesh Shah, ICICI Securities.Sectorally speaking we have seen quite a bit of breakout as far as the PSU banking names is concerned. Do you think that to be a structural change as far as the charts are concerned and what is your take on IT now? Yes, if you look at the PSU bank chart, there is a long decade breakout and that sector has not done for a long time. A long decade breakout does not get fizzled out in a couple of weeks or a couple of months.

We believe there is a structural turnaround in the PSU banks indices that should get better and better going forward. Again, if you look at the market breadth where 70% of the stocks are now trading above the operating average that again gives us the confidence that the current breakout should not get fizzled out in months. But yes, it should continue for a couple of years.

So we are looking more positive for the PSU banks as a whole. Sector also, if you look at the PSU index, it also has witnessed a long decade breakout which should get continued over a period of time. Also, if you look at the ratio chart of PSU index versus the Nifty, it is at the decade-long lower level.

So it clearly indicates that things should get better from the current levels for PSU index as well as for PSU banks. If you look at the IT sector, some peculiar behaviour we have found in the IT index. If you look at the chart from 2004, there have been four major corrections in the IT sector where the corrections are in the magnitude of 34 to 28% and each correction lasted for six to seven