Tech Mahindra: Will the IT Stock Outperform Soon?

Last Updated on Nov 18, 2022 by Anjali Chourasiya

The market is showing extraordinary strength, and most counters have recovered from the extreme lows and started an upward journey. A couple of sectors are still laggards, and one of them is IT. Herein I share my technical view on one of the IT companies, Tech Mahindra.

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Table of Contents

Monthly: Price action

Since its inception, it seems that the price was continuously taking the resistance of the white trend line. It confirmed the breakout of the trend line during 2021, and since then, the trend line resistance is now acting as support. This change in polarity is of great importance in confirming bullish behaviour going forward. The price is right onto the support level, making the deal extremely favourable from a risk-reward perspective.

Monthly: Ichimoku

On the Ichimoku front, it’s clearly visible that the prices decisively stated above the Kumo cloud since 2012. At present, the price is well above the cloud, the future cloud is also bullish, Chikou span is well in open space and Tenkan – Kijun is also holding up the trend well. Overall, all formations are attractive to stay bullish.

Weekly: Price action and Fibonacci

The last advance of the price action started from the low of 2020 and lasted till the beginning of 2022. After forming the head and shoulder formation, the price started declining. The target of the bearish pattern was perfectly achieved. The price also took the support of the white Trend line, which coincides with the 61.8% retracement level of Fibonacci. All multiple observations make the counter worth looking at from a long-term perspective.

Weekly: RSI

Relative Strength Indicator (RSI) is a leading momentum indicator and serves the purpose of understanding the strength in the counter on a relative basis. During the recent decline, the weekly charts RSI entered the extremely oversold zone. After staying there for a couple of weeks, it came out of it decisively and formed higher tops and higher bottoms. Presently at 46, it is inching upward and about to cross the 50 mark. Such an overbought zone is seen after many years, and now the counter is showing the strength getting accumulated. Going forward, there is a bright possibility that the counter may surprise the upside.

Weekly: MACD

Moving Average Convergence Divergence (MACD) is a lagging indicator. There are multiple ways of looking at MACD. Here on the weekly chart, it is the first time since the listing date that the MACD has reached the extreme low point on the chart and now reversing from those levels. MACD is pointing upward, confirming the gathering strength in the counter. More strength can be expected once the MACD crosses the zero line on the upside.

Weekly: Bollinger Bands

After extreme volatility, the broadening bands started squeezing. The Bollinger Band indicator has great importance in squeezing bands. It shows the likely emergence of a new release soon. Considering the other observations discussed earlier, we can expect the breakout anytime soon. The squeezing band breakout can be confirmed once the price crosses the higher band of Bollinger. Upon trigger, the rally can be really fast. It’s worth keeping an eye on : )

Ratio Chart: Tech Mahindra and Nifty IT Index

Let’s now look at the ratio chart of Tech Mahindra and the Nifty IT index. As we can see, the ratio chart is forming a symmetrical triangle formation, and at present, it is right onto the support zone. Looking at the chart, it seems that the downside on that is very limited as the trend line has been respected for many years (9 yrs). One can expect a bounce on the chart, which confirms the likely outperformance of Tech Mahindra over the Nifty IT index.

Ratio Chart: Tech Mahindra and Infosys

Tech Mahindra, for a long time, has not been the darling of the market over Infosys and other IT counters. Herein we look at the ratio chart of Tech Mahindra and Infosys. An almost similar chart like Tech Mahindra and Nifty IT, this ratio chart also forms a falling wedge. Looking at the historical trend line support, the downside seems very limited, and the immediate bounce is very much likely, which confirms the likely outperformance of Tech Mahindra over Infosys. Going forward, the longer time outperformance may also come into reality.

Ratio Chart: Tech Mahindra and HCL Tech

Let’s also look at one more show chat of Tech Mahindra with HCL Technologies. The rising trend line support is right around the corner for the price action right now. Looking at the past four years, trend line support, the bounce from here on is very much likely and supporting the bullish view on Tech Mahindra.

Putting it all together

After looking at the monthly chart with change in polarity, monthly Ichimoku cloud support, future bullish cloud, weekly trendline support with 61.8% Fibonacci retracement support, and extremely oversold RSI reversal, one can say all of them are making the counter very much attractive. Further, MACD reversing from lifetime low levels, squeezing Bollinger bands suggests the same. Tech Mahindra ratio chart with Nifty IT index, Infosys, and HCL Technologies shows the likely outperformance of Tech Mahindra from hereon.

Statutory Disclosure: Kindly note that this update is only for educational purposes. It is safe to assume that my personal position, my fund’s position, my client’s position and my relative’s position may be open at the counter. Prefer to take the advice of your financial advisor before initiating any position.

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Kunal Rambhia

Kunal is a fund manager at The Streets, a private fund. He has been in the equity market since 2010, performing various roles such as Associate Research Analyst, Research Analyst, and Associate Portfolio Manager. He has media appearances with CNBC and ET NOW. Kunal is also a visiting faculty in multiple colleges.