Tech Mahindra Ltd, a prominent player in India’s IT sector, has recently shown remarkable signs of strength, surging over 3% in a single week. This surge has allowed the stock to break free from a downward-sloping trendline on the weekly charts, accompanied by a breakout from a Flag pattern on the daily charts. Experts suggest that this could be a promising entry point for investors.
The Breakout and Consolidation:
Tech Mahindra’s stock, a component of the S&P BSE Sensex, reached a 52-week high of Rs 1,276 on September 8, 2023. This achievement followed a noteworthy breakout from a year-long consolidation phase. With this breakout, experts foresee a potential upward movement that could take the stock towards the 1500 level.
Tech Mahindra’s journey hasn’t been without its challenges. In September 2022, the stock briefly touched a high of 1165 but failed to sustain that momentum. However, it managed to find support above 950 levels, staging a rebound. A more significant breakout occurred in July 2023, as the stock broke free from its trading range. It then held above the 50-week moving average on the weekly charts, setting the stage for its current consolidation around the breakout area.
The stock’s recent price action paints a positive picture. It is trading comfortably above crucial short- and long-term moving averages, a reassuring sign for bullish investors. Additionally, the daily Relative Strength Index (RSI) stands at 65.5, indicating a healthy balance between oversold and overbought conditions. Moreover, the MACD indicator is above its center and signal line, signaling a bullish outlook.
In broader market context, the Nifty 50 index recently broke out on the upside after a month-long consolidation phase. Similarly, the IT Index, after consolidating for 16 months, is also showing signs of strength, reflecting a positive trend in the IT sector.
Kapil Shah, a Technical Analyst at Emkay Global Financial Services Limited and Trainer at FinLearn Academy, shares his insights. He believes that Tech Mahindra’s recent breakout after a year-long consolidation marks the beginning of an upward trend. The stock has found support at its long-term moving average, and the short-term moving average is showing upward momentum. Furthermore, it has broken a minor descending trendline and a flag pattern on the daily chart, supported by an upward-sloping channel.
Based on the technical setup, including analysis of Nifty, the IT sector, and Tech Mahindra, Kapil Shah suggests a buying opportunity in the range of 1270 to 1240, with a stop loss at 1180 on a closing basis. He anticipates an upside potential of up to 1500 to 1550 levels, with a trade duration of 1-2 months.
In conclusion, Tech Mahindra’s breakout from a prolonged downtrend presents a compelling investment opportunity, backed by positive technical indicators and a bullish market trend in the IT sector. Investors may consider exploring this stock with a cautious but optimistic approach.