Published on: July 4, 2024
Rising from the ashes, the Nifty IT sector has emerged as a standout performer, capturing significant attention as the Nifty50 hits an all-time high (ATH). Traditionally, robust sectors such as PSU Banks, Metals, FMCG, and Infra, which had been the darlings of the market, have recently been underperforming due to the results of the General Election. This shift has raised an intriguing question: Is money moving to IT?
The Ultimate P&F-RS Matrix Analysis To understand this transition, we utilised the Ultimate P&F-RS Matrix—a relative strength matrix using Point and Figure (P&F) charts. This tool compares the performance of one sectorial index against others, ranking them based on their relative performance. Our analysis included all sectorial indexes listed on the NSE, and the results are:
Source: RZone
The Nifty IT sector topped the chart with a score of 22 points, closely followed by CPSE and Financial Services, each with 17 points.
This indicates a shift in investor sentiment and capital flow towards IT stocks, which were previously considered the market’s “dark horse.” The impressive performance of Nifty IT suggests that profit booking from previously rallied sectors is now being redirected into IT.
Performance of Nifty IT Constituents
Source: RZone
Further examination using the All-Chart Matrix on Nifty IT constituents revealed that Persistent Systems leads the pack, followed by Coforge. Noteworthy large-cap IT firms like Infosys (Infy), Tech Mahindra (TechM), and Wipro are also demonstrating bullish momentum. This resurgence is significant, given the historical performance and market perception of these companies.
The Ultimate RS matrix is a crucial tool for traders and investors as it highlights sector outperformance, guiding them to invest in promising sectors. Currently, the Nifty IT sector’s rise on the matrix suggests a strong potential for short-term gains.
Risks and Considerations
However, despite the promising outlook, caution is warranted. The Ratio Chart of NiftyIT/Nifty50 presents a different story. The ratio is trending below its 50-week Exponential Moving Average (50WEMA) and 200-week Exponential Moving Average (200WEMA), forming a Death Cross. This technical pattern is often interpreted as a bearish signal, indicating potential risks ahead.
Source: Zone Web
The Death Cross suggests that the current uptick in the Nifty IT sector might be a trading opportunity rather than a signal of a long-term bottoming phase. Investors should keep a close watch on the ratio chart, as it will be crucial in determining whether the current momentum can be sustained or if it is a temporary spike.
The recent momentum in the Nifty IT sector, as highlighted by the Ultimate P&F-RS Matrix, indicates a significant shift in market dynamics. With outperforming sectors like PSU Banks, Metals, FMCG, and Infra showing signs of underperformance post-General Elections, IT has become a focal point for investors. However, the technical indicators suggest caution, emphasising the importance of monitoring key ratios and technical patterns. While the current trends point towards a favourable short-term outlook for IT, long-term investment decisions should be made with careful consideration of all market signals.
