Nifty IT ready for a U-turn, says JM Financial, puts weight behind largecap
Nifty IT (NSEIT) might be ready to take a U-turn, believes JM Financial, suggesting that it was time to start putting weight on the large cap stocks in this sector.
The top 5 constituents cumulatively hold 81% weight in the index. These are Infosys (7%), Tata Consultancy Services (25%), Tech Mahindra (11%), HCL Technologies (10%) and Wipro (8%).
The Nifty IT index had witnessed 7.7% decline so far this year as opposed to the Nifty50 index surging by 1.4% while the ratio of NSEIT viz-a-viz the Nifty has declined to 1.48 levels against a high of 2.25 levels in December 2021, indicating a massive underperformance of 34% in a span of 2.5 years.
“With the index trading in a range, we believe it has a potential to move towards 1.72-1.75 levels in the near term,” said Neeraj Agarwal, analyst at JM Financial.
Further, the report states that the IT sector has a strong price seasonality in the second half of the calendar year, as in the last 10 years too, the index has closed in the green in the 3rd quarter and the 4th quarter on 7 occasions, each with an average up-move of 8.9% and 4.7% respectively.
Also read: Macro risks might lead to valuation derating for SBI, says JM Financial
Technical Placement
The NSEIT index has declined from a high of 38,560 levels to a low of 31,320 as on yesterday. It has almost retraced 59% of the larger move as observed during the period April 2023 to February 2024. The retracement levels of 62% typically acts as a strong support zone, currently placed at 30912 levels, suggesting limited
