After the two good sessions on Friday and Monday, yesterday and today remained largely flat. The market is still digesting the roughly 900-point gain from those two sessions. In our video series today, we’ll look at a sector that was the worst-performing sector just six months ago, and now it is the best-performing sector.
This is how sectoral plays evolve—going from best to worst and worst to best—and we’ll discuss how to play that in the second half of this video.
Where is the market headed?
Market Overview
The market has had two days of consolidation after the recent jump, but the gap has not filled. The market hasn’t yet given any indication that it wants to come down. The two-day low has not been broken, so so far it looks alright. Depending on other cues, the market may consolidate here for some more time, perhaps filling the gap before it goes up, or it may just stall and stagnate. We’ll know more about this in the coming weeks.
The cues from the budget are still far away, so that buildup will likely start happening toward January, with some murmurs around FII allocations toward India possibly beginning by the end of December. Other than that, I don’t think there are any major cues between now and the end of December, except maybe for any moves by Trump around tariffs, similar to what he’s done with Mexico, Canada, and China. It’s unclear how tariffs may affect India, but this could cause some market and currency volatility over the next 30 days.
Nifty Next 50
The Nifty Junior index was very flat today, within the previous day’s range, losing just 0.26%, which is negligible.
Nifty Mid and Small Cap
The mid-caps were also flat, losing only 0.05%, while the small-cap stocks actually gained 0.61%. As I’ve been mentioning in the last couple of days, the small-cap chart is looking positive, and small caps are just about 7-8% below their previous highs. This could signal an upswing, followed by a possible downswing, but it’s encouraging that the market is consolidating in a gradual manner rather than a sharp correction, which is a good sign for small caps.
Nifty Bank Overview
The Bank Nifty index opened at the previous resistance level this morning but came off that point, closing with a loss of just 0.03%. So, the Bank Nifty has a chance to break out from here in the coming sessions.
Advanced Declined Ratio Trends
The advance-decline ratio was almost flat, with 217 declines and 278 advances.
FII figures were largely positive for November 25, boosted by MSCI flows. Many people might argue that these figures are not entirely reflective of the market’s regular trend since they include the MSCI rebalancing, but the fact remains that 10,000 crore inflows are still significant.
Nifty Heatmap
Today’s heat map was a bit mixed. We saw losses in autos, cement, power, pharma, Adani stocks, some banking stocks, Reliance, and Infosys, but other sectors performed reasonably well. Some names like Asian Paints, BEL, Lodha, Varun Beverages, Zomato, and Godrej CP did well. On the downside, Adani stocks and energy stocks were hammered, particularly after the news that Adani Greens would not be receiving more funding from its foreign investor. This news, combined with a SEBI probe into undisclosed investigations, harmed Adani Group’s market cap today.
Sectoral Overview
Looking at sectoral trends, IT stocks were leading the market, up by 1.1%, followed by FMCG at 0.8%. However, autos, pharma, and energy sectors were the biggest losers for the session.
Sectors of the Day
Nifty IT Index
The IT sector, in particular, has seen significant recovery over the past year. From trailing just 5-10% gains six months ago, IT stocks are now up 37.5% over the past 12 months, easily ranking among the top-performing sectors. In the last three months, IT stocks have also performed the best across all sectors.
This bullish move in IT stocks is largely driven by growth in the US market, which is a key area for Indian IT companies. The narrative in the US market right now is that the incoming president will strengthen the local economy, which could lead to more business for Indian IT companies. The impact of tariffs or changes in visa policies for Indian techies remains to be seen.
Stock of the Day
TATA Teleserv
Among the top-performing IT stocks, Tata Telly Maharashtra was the biggest gainer today, up by 16.7%. This stock has been consolidating in a range from 110 to 64-65 and has now made a significant move upward. After a strong post-Covid rally from Rs. 2 to Rs. 240, the stock has been in a consolidation phase for the past couple of years. Now, it looks like this stock may be ready to break out if it crosses the 110-mark.
Story of the Day
Now, let’s focus on the sector that has seen the most dramatic turnaround: the IT sector. Just six months ago, it was one of the worst performers, but now it’s the best-performing sector. This is the only sector out of the 13-14 that we track that is currently at an all-time high, while the broader market is still some distance away from its all-time high. The breakout in the IT sector began earlier this year, after two-and-a-half years of consolidation following a big run from COVID until January 2022.
Looking at the long-term chart, the IT sector has experienced massive growth before. Between 1997 and 2000, the sector saw a dramatic rise, increasing almost 80 times in just a few years. It’s hard to fathom such growth, but it’s a testament to how volatile and rewarding the sector can be. Many stocks, like Satyam, went from Rs. 25 to Rs. 7000 during this time. However, after this massive bull run, the IT sector saw very little growth for the next two decades, with stocks consolidating or falling significantly in value. This shows the risks of advanced discounting and overvaluation.
From 2017 onwards, the sector started seeing a recovery, marred by the Covid pandemic, but now, we seem to be entering another period of growth for IT stocks. If we look at the ratio of IT stocks to Nifty50, we can see that after a big run-up, the IT sector has performed in line with the Nifty for some time. But if the trend continues, IT stocks could start outperforming the broader market again.
The momentum score for IT stocks has seen a significant improvement. In June 2024, it was near the bottom of the ranking, but by November 2024, it had moved up significantly. The momentum is now strong across various time frames, with IT moving to the top of the table in one-month, three-month, six-month, nine-month, and twelve-month rankings. Meanwhile, sectors like Energy and FMCG, which were performing well earlier, have fallen to the bottom.
The IT sector’s performance over the last year, three years, six months, and one month has been impressive, with stocks like Persistent Systems, HCL Tech, and Co Forge showing significant returns. Some of these stocks have gained 72% to 206% over the past three years, and in the last one month and three months, they have rebounded strongly.
Given the momentum, it’s important to keep an eye on IT stocks for opportunities, particularly for buying on dips. However, this is only advisable until the sector loses momentum. If the momentum wanes, it’s best to shift focus to the next leading sectors. Sectoral rotation is a constant in the market, and your portfolio should be aligned with these changes.
The key takeaway from this sectoral rotation is to stay flexible and follow the strength while it lasts. If you’re not following a set strategy or rules, you risk holding onto a sector that might underperform for an extended period. If you keep rotating your portfolio and adapting to the changing market trends, you can potentially capture the gains of each sectoral cycle.
If you hold IT stocks, I would love to hear your outlook for the sector. Some of you may have more insights into how things are shaping up in the IT space, so please share your thoughts in the comments. It will be helpful for others to learn from your perspective.
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