IT Sector Finally Seeing A Good Run, Say Analysts

After a massive underperformance, the IT space is finally seeing a good run, according to analysts.

The large caps and mid caps in the IT sector are looking very good, according to Kunal Shah, senior technical and derivative analyst at LKP Securities Ltd.

The benchmark stock indices ended at a record high on Friday, as a sharp rise in IT stocks followed the sector heavyweights Infosys Ltd. and Tata Consultancy Services Ltd. announcing their third quarter results.

The S&P BSE Sensex jumped 847.27 points, or 1.18%, to close at 72,568.45, while the NSE Nifty 50 surged 260.80 points, or 1.20%, to end at 21,908. The Nifty hit an intraday high of 21,928 and the Sensex touched 72,720.96 points during the day.

"Overall, I am hoping for the 22,000 upside on the Nifty index, which has been consolidated in a broad range in the last one week or so. Today, we finally broke out of the sideways strength and got a breakout with volumes. So, definitely, we are going to reach the 22,000 levels going forward," Shah said.

According to Dharmesh Kant, head of equity research at Cholamandalam Securities Ltd., it is a bottom-up and value-buying market. "The corrections will be bought into; that is how we see the market. And, in such an environment, one has to put oneself correctly sectorwise and stockwise," he said.

"The Infosys Ltd. stock has given a fresh breakout over the technical charts. Both Infosys and Tata Consultancy Services Ltd. look very attractive at the current level. The charts for both companies have an identical pattern," said Shah.

"The valuation will start looking comfortable once the business starts flowing in, and that means there needs to be revenue growth in constant currency. At the same time, the outlooks from all the sectors, BFSAI in particular, should be positive," said Kant.

In the oil and gas space, ONGC is Shah's top pick. "ONGC looks very good in the oil and gas space and they have made a fresh high as they have been trading in a strong uptrend," he said.

Among the banking stocks, Kant's top picks are ICICI Bank Ltd., Axis Bank Ltd., HDFC Bank Ltd., and Kotak Mahindra Bank Ltd.

"These stocks are likely to do well, not only in the...growth path but also on the asset quality, where there will be less slippage. And the net profit will see improvement," Kant said.