As Nifty IT witnesses an extreme downtrend, what should investors do?

As Nifty IT witnesses an extreme downtrend, what should investors do?

by 5paisa Research Team Last Updated: 2022-05-03T12:29:37+05:30

 Nifty IT plunged over 1.50% on Monday and has hit a 9-month low.

The Nifty IT index is placed at 31138.80 and has plummeted over 15% since its prior swing high. On the technical chart, it formed a series of lower lows and indicates strong bearishness. Globally, the tech stocks have been hammered down which is evident from the fact that NASDAQ slipped about 12% in the month of April. Thus, the index has lost points in the last five weeks. Moreover, all the constituents of Nifty IT are below their 200-DMA.

As per the technical indicators, the index is displaying strong bearishness. The 14-period daily RSI (27.16) is in bearish territory. The 14-period daily ADX (36.32) is pointing northwards and signals strong downtrend. Moreover, it is above its prior swing high which is a bearish sign. The KST and TSI indicators have a bearish view. The Mansfield Relative strength indicators have relative underperformance against the Nifty 50 and Nifty 500 index. On the monthly timeframe, the MACD is given a bearish crossover. With this, it is unlikely that the index is going to reverse anytime soon.

The higher inflation is likely to keep IT companies at bay. Moreover, the higher attrition rate reported by top companies like TCS, Infosys, and Wipro is also a negative factor that weighs on the companies. Successive interest rate hikes are going to hamper growing IT companies and thus, the outlook for the IT sector is negative.

With this, it is justified for long term investors to stay away from IT stocks for a while. The level of 35000 shall act as ultimate support and if falls below this level can be met with a strong downtrend. Timely profit booking and a sell-on-rise in a strategy that must be focused on by the traders and investors. Investors shall look for a base formation by the index which can be the starting point to accumulate good quality stocks.

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