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The downtrend in the BSE Information Technology (IT) index that was in place since January 2022 has come to an end. The gradual rise in the index since May this year indicates a trend reversal. Also, the strong breakout and a close above 32,000 last week marks the end of the prolonged sideways consolidation that was in place since May last year. It also confirms the trend reversal and indicates that a new leg of upmove has begun. The BSE IT is currently at 32,697.84, up 14 per cent so far this year.
The background
The BSE IT index (32,697.84) made a peak of 38,713.30 in January 2022. After falling to a low of 26,827 in June 2022, the index ran into a prolonged sideways consolidation broadly between 26,000 and 32,000. The strong breakout above 32,000 last week has marked the end of this sideways consolidation.
Bullish indicators
The recent breakout above 32,000 can be considered as very strong because it has happened after a prolonged sideways move for more than a year. The sideways move also indicates a strong base formation for the new leg of upmove that has begun just now.
The 21-Month Moving Average, currently at 30,375, was capping the upside since July last year. The BSE IT index has made a decisive break above this moving average resistance in August. It is now sustaining well above it.
On the weekly chart, the 21-Week Moving Average has made a bullish cross-over with the 55-Week Moving Average. This is a bullish signal.
Finally, the price action since June last year indicates that every time the index declined below 27,000, it had got bought.
All the above indicators give out a bullish signal for the BSE IT index.
Long-term outlook
The downtrend has reversed, and the outlook is bullish now. The BSE IT index is now in the very early stage of a long-term upmove. Immediate support is around 31,500. Below that the region around 30,000 is a very strong support. The chances are high for the index to sustain very well above 31,500 itself, going forward.
The BSE IT index can surge to 37,000-38,000 over the next two-three quarters, that is, by this year end or in first quarter next year.
From a long-term perspective, the current leg of upmove will have the potential to take the BSE IT index up to 42,000 by the end of next year.
This bullish outlook will go wrong if the index declines below 30,000. In that case, though less likely, the index can fall back to 28,000-27,000 again.
Stocks to watch
From a long-term perspective, the following stocks are looking good on the charts within the BSE IT index: Zensar Technologies, Tech Mahindra, Sasken Technologies and HCL Technologies. Investors will have to do their due diligence and have proper risk management system in place before investing.
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