IT Bounce Breaks 5-Day Losing Streak: Analysts Caution Financial Relief May Be Short-Lived
Investors in India’s challenged information technology sector received a momentary boost on Wednesday, as software services stocks recovered, ending a 5-day losing streak. However, analysts remain cautious, indicating that this relief might be short-lived amidst bearish sentiments.
Current Market Overview
– Nifty IT Index Performance:
– Rose by 1.6%, closing at 30,526.35.
– Gained initially by 3.1% earlier in the day but surrendered some of those gains.
– Broader Market Movement:
– The Nifty overall index saw a slight rise of 0.2%, or 57.85 points, ending at 25,482.5 after peaking by 0.9%.
– Recent Trends:
– The IT index had previously dropped 9% over the last five sessions, compared to a 1.2% decline in the broader Nifty index.
– February was a challenging month for the IT sector, exacerbated by anxiety over new AI tools launched by Anthropic, leading to a sell-off due to concerns over future revenues.
Analyst Insights on the IT Sector
Amit Trivedi from Yes Securities predicts continuous constraints in the sector. He commented:
– Following the sharp correction, the index is likely to consolidate or trade within a range, facing immediate resistance at 32,800 and support at 29,300.
Sudeep Shah, head of Technical and Derivative Research at SBI Securities, emphasized the following points:
– The index shows lingering weaknesses despite the short-term bounce.
– The current uptick appears largely driven by short covering, and initial strength might not be sustainable.
– Over 90% of short positions were rolled over into the new series, indicating persistent bearish sentiment among traders.
Short Positions and Market Sentiment
– Rollover Insights:
– The rollover ratio in the IT sector reached 90% for futures, with open interest climbing by 32% during February.
– Specific stock rollovers varied between 81% and 95%, indicating a strong carry-forward of existing short positions.
– Key Companies:
– Rollover rates into March were particularly high for Coforge (94.7%), Tata Technologies (94.6%), Oracle Financial Services Software (94.3%), and Tata Elxsi (92.7%).
Vipin Kumar from Globe Capital Market highlighted that any upward movement towards the 31,500-32,000 range might reinvigorate selling pressure, potentially dragging the index to around 28,500 soon.
Conclusion: Cautious Outlook for IT Sector
While the IT sector experienced a brief recovery on Wednesday, analysts caution that the underlying market conditions remain weak. As we look ahead, the potential for sustained growth appears limited, with significant resistance levels indicated by expert analyses.
Investors should prepare for a challenging landscape and carefully consider their positions in the IT sector amid ongoing volatility.