IT Sector Set For 'Strong Rally' Within Six Months, Says Nuvama's Manav Chopra

Manav Chopra: So, if we go back like a month, like a few weeks back, IT was one of the most unfavoured sectors.

Mainly it has been a major underperformer and that's where we witnessed that, you know, largely IT has been on a larger uptrend. It was our long-term model that we run, you know, usually which indicates an early trend mover advantage that we got. Based on that, we looked into the broader formations, where you know, IT has been massively underowned and one of the large-cap sectors, which is massively underowned and is basing out and is showing some structural changes.

You know, when actually things start to play out in favour of any fundamental confirmation, the index has already seen a good run-up and I think that's exactly what has played out at the moment. But talking about the present and what we do going forward, I think we've seen a very, very strong run-up coming into this space. But one thing that we shouldn't forget is that majority of the mutual funds in our last study are still underweight.

So a frontline sector, which is majority still underweight and the kind of results of the previews that we're getting and any shift in terms of the guidance or the parameters once the mutual funds start to chase the frontline space, I think, that leads to another strong leg up coming in.

And with the kind of run-up that we've seen lately, recently, the way the IT index has breached, its Feb. highs with a lot of stocks showing strong cash light buying, I think, there is a reasonable room still on the upside and we still foresee IT index going towards 42,000–45,000 and the coming 3–6 months should be very good for the IT index in general.

Manav Chopra: See, generally most of the IT names like HCLTech or even Wipro for that matter and even Tech Mahindra, are witnessing a good amount of short-covering rally. They were massively, you know, shorted kind of names, relative to other names, and the kind of run-up that we've seen recently with very, very strong volume setup, I think, HCLTech definitely seems to be likely heading towards its recent important levels of Rs 1,700–1750. We don't take away from that, because generally IT as a space looks good.

So there will be a catch-up rally coming from the laggards as in general, but in my pecking order, I strongly feel the stocks which could see sustainable new highs coming in, I think, definitely Infosys and TechM remain my top bet. But other names like HCL Technologies or Wipro for that matter, which have been the laggards in the last 6–12 months would actually see some bit of a catch-up also going forward.

So, with the IT index, which has a reasonable room of 10–15% from here, these stocks can anywhere see a rally of another 10–15%, maybe an outrange of 20% very much there. So we are generally still very bullish, but for a near-term momentary trade, yes, HCL and Wipro do have some 15% more run-up from here too.

Manav Chopra: Very good thought. You know, generally when we are looking into the large-cap structure, TCS eventually has seen that strong move and breakout coming in. I think, the price prior to the result was witnessing a series of selling pressure and there was some liquidation in this frontline name.

So, I think, along with the short covering that has got TCS moving, I think there is going to be some more fuel going forward, particularly in the names which are reasonably underowned and which have performed in recent times.

So I would definitely want to have TCS as one of the frontline names, which would definitely propel it going higher. I will not be surprised if we see TCS over the period of time at close to Rs 4,600–4,700 levels. And with the force coming back with the FIIs also turning bullish, I think the frontline names would be chased.

Within the IT space, obviously the frontline and the most liquid ones would be Infosys, TCS, but the way TCS has given some clarity and the monthly breakout on the charts, I think we will not take it away that the TCS also has a good amount of room towards Rs 4,600 level. So that should be the target, at least 3–6 months from now.

Manav Chopra: The only thing was that in the previous decline, Coforge retraced a little more or more than 50% of its advance. So you know, usually when that happens, the stock usually takes a good amount of time to base out and bottom out.

Lately, we have seen a good catch-up within the mid-cap space in general. You know, we've seen a lot of mid caps actually go to new highs at an early stage, but that was not the case with Coforge, because it has largely been one of the laggards and has multiple resistance.

But I think with the near-term perspective, the stock after breaching its Rs 5,850-resistance levels, and the way the stock has sustained above it, consolidated and resumed its uptrend, I think, definitely one of the laggards within the mid caps will see some bit of run-up.

I will not be surprised to see how the structure is played out and a beautiful trendline breakout that Coforge has witnessed while rallying towards Rs 6,000–6,400 to sub Rs 6,500. It is very much likely that the previous rally, where it halted, that's where we might see the immediate extension towards and then we will review it from there whether we see much more upside coming in on. I think there is a reasonable room still left in HCLTech, TCS and Coforge going forward.

Manav Chopra: When I'm looking at the Nifty construct over the medium-term perspective, and the kind of market breadth that we have seen in the large-cap names, after the election results, I don't foresee any big corrections or profit-taking coming, at least to the front line segment.

My sense is that the Nifty is headed towards 25,000-25,500. This is very much likely over the period of next 2–3 weeks and mainly this rally, like we anticipated, would be participated by the IT names followed by Reliance, which is also well-positioned, Larsen, select FMCG names, pharma and the power utility.

So, in general, this entire space and the frontline segment is looking so well-positioned. With broader breath I don't see any weakness or exhaustion patterns, which hints at any correction. So largely, I think the frontline space is very well-positioned for much more room on the upside without any correction or any opportunity for a major dip.

But there is a possibility of sector rotation happening and the mid caps might see some bit of an exhaustion or profit-booking coming in because you know, they have already seen a reasonably extended rally in the mid caps, small caps. Many few pockets of sectors within the mid caps have already gained more than 30–50% in the last few weeks.

So I think the defensive structure of the markets heading towards the results and with the broader breadth improvement, the frontline names are the most preferred spaces to be in. In that case, I think with the support of IT and other sectoral analysis, 25,500 is what we will be looking at in the next couple of months for the markets.

Manav Chopra: Bank Nifty, you know, has witnessed a very strong rally, obviously with the MSCI angle that played into the HDFC.

But going forward, I think now this sector is getting into some bit of a time pause correction. I think this is a very healthy signal for the markets in general and we've seen, you know, such classical examples happen in the sector over a period of time.

So, for the near-term perspective, I think Bank Nifty should see some bit of a more time-price consolidation, where it might move around the levels of 51,000–52,000 on the lower side, and the upside seems to be near-term cap towards 54,000. So this is a zone where Bank Nifty might consolidate, will start to regain and, as in when the Nifty starts to break beyond 25,000 levels, I think that would start triggering some upside for the banks going forward. So, it's just a matter of time when the banks will also resume. We have seen enough time-pause correction also happen in the PSU banks, which is in general, very healthy.

My sense is that going forward Axis, ICICI and SBI should take the lead for the Bank Nifty and a likely scenario where SBI should be heading towards sub Rs 1,100–1,200 levels. I think, a reasonable amount of an upside is still pending in SBI. We've seen a very strong base set up in SBI over the period of a few weeks, which is very encouraging.

So in general, we are still positive on banks, but my sense is that you know, IT is the most preferred sector to be in, but the current structure of banks would start seeing some positive momentum above 53,500 closing.

Manav Chopra: Tyre, as a space, is within the auto sector. And you know, auto as a sector has been very good and has witnessed a very good bull rally since October 2023 and there have been certain pockets within the sub-sector of autos, which have seen a bit of a correction. And Tyre as a sector has formed a very, very strong base formation.

Over the past few weeks, we have witnessed a very strong accumulation pattern happen post the decline of 10–15% in individual names. My pecking order is Apollo Tyres and CEAT and we expect new highs coming into the stock, when we are looking at the international rubber prices. My sense is that international rubber prices are also on the verge of peaking out.

Also, crude has come to a point where you will see some bit of a resistance and cool off coming in the next few months, which could act as a reasonable tailwind for tyre names in general and recently a short-term breakout in tyres with volumes.

I think all these confluence together indicates a very strong run-up rally, which is likely to play out. And in that case, you know, we've given an upside target of Rs 3,700 in CEAT, which is still 30% from current levels and for Apollo Tyres my target stands at Rs 720, which is like 35% of current level.

So, we see a reasonable room coming to these names backed by a very strong larger uptrend, which is still intact.