it stocks: Reversal trend! Why it is the right time to invest in IT stocks

The IT industry experienced a significant boom during the pandemic as the demand for digitization increased. As a result of increased demand, the industry had seen a significant rally in share prices.

In IT, industry growth and high turnover are two sides of the same coin. Demand led to aggressive hiring, talent retention and salary increases that caused severe margin shocks in prior quarters.

After two years of massive profits and raises, stock prices plummeted. The Nifty IT index fell nearly 30% from its 2022 peak, correcting the high valuations at which it was trading.

From today’s perspective, the IT industry sees a trend reversal. Conditions are improving as hiring slows and turnover rates normalize. This will improve their margins in the coming quarters. It is driven by the sector’s strong selling and healthy deals.

Another factor favoring export-oriented IT services is the appreciation of the dollar against the rupee. America is the largest buyer of Indian IT companies. They contribute over 60% to sales. Therefore, the earnings in dollars produce a higher value when converted into Indian rupees, which improves the sales of the companies.

For technical reasons, the Nifty IT Index is making lower lows while the Relative Strength Index is making higher lows. This is called bullish divergence. This indicates that the bearish momentum in the index is slowing down. It is usually a precursor to a bullish reversal.

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In addition, the ratio of Nifty IT to the Nifty 50 index has fallen to 1.50. This level acted as resistance for several years prior to the pandemic. The same level will now serve as a support. This means the Nifty IT Index will outperform the Nifty 50 from here.

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Overall, the next quarterly results could see margin surprises as cost cutting efforts and order book execution begin to take hold. The sector is well positioned for long-term growth and it seems now is the right time to invest in IT companies.


Technical Outlook

Nifty ended the week with cuts of more than 1 percent. It ended the week with a hammer candle, suggesting that the short-term correction may be over. The daily RSI is also recovering from 40 levels, suggesting that bullish momentum might resume soon. Call writing near 17,000 strikes on monthly expiry suggests this level is likely to act as key support. From a seasonal perspective, October is a bullish month for the markets. Markets have ended positively in October eight of the last ten times. So, all of this suggests that traders need to look for buying opportunities.

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expectations for the week

Markets could be dominated by global news streams over the coming week as no major events are expected. Investor sentiment could be influenced next week by US unemployment and domestic data such as manufacturing, deposit and credit growth numbers. Other significant factors that can affect the market are fluctuations in crude oil prices and the strengthening of the dollar against other currencies. Investors should pay attention to stock-specific news. Nifty50 closed the week at 17,094.35, down 1.34%.

https://economictimes.indiatimes.com/markets/stocks/news/reversal-trend-why-it-is-the-right-time-to-invest-in-it-stocks/articleshow/94576526.cms it stocks: Reversal trend! Why it is the right time to invest in IT stocks

Russell Falcon

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