Top three IT stocks to watch out for in this bull market

The Indian stock market is abuzz with optimism thanks to several encouraging factors. The recent victory of the Bharatiya Janata Party (BJP) in Maharashtra has sparked celebrations on Dalal Street, with the Nifty50 surging by more than 350 points on a Monday morning at 24,250.

But it's not just the election results driving the bullish sentiment. The markets, particularly the Nifty50 and broader Nifty500 indices, have bounced back from their 200-day exponential moving averages (200DEMA), signalling that the bull trend is still alive and well.

As the markets show signs of a bullish recovery, readers are increasingly seeking opportunities that can offer superior returns. One such opportunity lies within the Nifty IT Index, which has recently demonstrated a bullish pattern on the chart and shows significant potential for outperformance.

Nifty IT Index/Nifty50 ratio chart

The Nifty IT Index has been one of the standout performers recently, and its relative strength compared to the Nifty50 index is an important factor to watch. A key indicator to track this is the NiftyIT/Nifty50 ratio, a chart that highlights the performance of the IT sector against the broader market. A rising ratio implies that the IT sector outperforms the Nifty50, while a declining ratio indicates the opposite.

Recently, the NiftyIT/Nifty50 ratio broke out of a significant multi-year resistance zone, signalling a shift in momentum. After breaking through this resistance, the ratio was retested, and the rally resumed, reinforcing the belief that the IT sector may continue to outperform the broader Nifty50 index in the months ahead.

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The breakout from the bullish pattern known as the "Anchor Column Follow Through" (AFT) further strengthens this view, suggesting that the Nifty IT Index’s dominance over the Nifty50 could persist.

Nifty IT Index

The Nifty IT Index has reached a new all-time high of 43,751, further demonstrating the sector's strength.

On the daily candlestick chart, the index has broken out from a downward-sloping megaphone pattern, which indicates that bulls are firmly in control of the trend. The Nifty IT Index looks set to continue leading the Nifty50 higher. This strengthens the case for further IT sector growth and points to a potential path for the broader market’s recovery from its recent declines.

Given the overall bullish trend, it's time to zero in on the top-performing stocks within the IT sector. Using the DeMAP (Definedge Momentum and Performance) tool, which tracks stocks trending bullishly, we identified three IT stocks with strong bullish setups that could outperform the IT sector and the broader Nifty50 index in the upcoming weeks.

HCL Technologies

HCL Technologies is one of India’s largest IT services companies. It offers a wide range of services, including IT infrastructure management, digital transformation, and enterprise solutions. The company has a robust growth trajectory and is a dominant player in both the domestic and global markets.

HCL Technologies has recently exhibited impressive bullish momentum on the Point & Figure (P&F) chart. The stock faced resistance around the ₹1,875 level. After several attempts to break this resistance, the stock finally managed to close above it, signalling a breakout. This resistance level had acted as a cap on the stock's price for several months, and breaking above it suggests that the stock is entering a new growth phase.

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The Bullish Quadruple Breakout on the P&F chart indicates that HCL Technologies is positioned for further gains. After a period of consolidation, the stock looks primed to potentially continue its upward trajectory. It is potentially an excellent play for those looking to capitalise on the IT sector’s strength.

Persistent Systems

Persistent Systems is a global technology services provider known for its strong focus on digital transformation, cloud computing, AI, and enterprise solutions. The company has been growing steadily, and its recent technical performance suggests that it is well-positioned to benefit from the ongoing growth in the IT sector.

On the daily 0.5% X 3 P&F chart, Persistent’s stock price is clearly trending bullish. It has formed a series of higher highs and higher lows, which is a hallmark of a strong uptrend. The stock has consistently broken through double top patterns (DTBs), signalling that the bulls are firmly in control of the trend.

For more such analysis, read Profit Pulse.

If the IT index continues to rise, Persistent Systems is well poised to maintain its upward momentum, making it a potentially attractive investment for those seeking growth in the sector.

Wipro

Wipro is another heavyweight in the Indian IT space, offering IT infrastructure, business solutions, and consulting services. With a global presence and a strong reputation for delivering innovation, Wipro has been outperforming the Nifty IT Index and the Nifty50 in recent weeks.

On the Daily 0.25% X 3 P&F Chart, Wipro's stock has recently surpassed its previous highs and is now trading at a 52-week high, demonstrating its bullish momentum. The recent breakout from a double top breakout (DTB) pattern signals a resumption of the bullish trend. Given its strong performance, Wipro is set to continue outperforming the broader indices, making it a potential top pick for investors looking for steady growth in the IT sector.

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As we move further into the bull market, the IT sector has raised the flag by hitting an all-time high and has the potential to continue its strong performance. The Nifty IT Index, backed by strong technical indicators, is on a solid upward trajectory, and the three stocks highlighted—HCL Technologies, Persistent Systems, and Wipro—are all well-positioned to potentially outperform both the Nifty50 and the broader IT sector in the coming weeks.

Note: The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only. 

As per Sebi guidelines, the writer and his dependents may or may not hold the stocks/commodities/cryptos/any other assets discussed here. However, clients of Definedge may or may not own these securities.

Brijesh Bhatia has over 18 years of experience in India's financial markets as a trader and technical analyst. He has worked with the likes of UTI, Asit C Mehta, and Edelweiss Securities. Presently he is an analyst at Definedge.

Disclosure: The writer and his dependents do not hold the stocks discussed here. However, clients of Definedge may or may not own these securities.