Accumulate TCS, breakout can give 60% upside: Analysts

Mumbai: Investors looking to accumulate blue-chip stocks could consider Tata Consultancy Services (TCS), India’s largest software exporter, at current levels as technical indicators are pointing to a limited downside from here. Analysts said interest rate cuts by the US Federal Reserve will be the next big trigger for information technology (IT) stocks, including TCS.

According to Tradonomy Research, TCS is in an ‘uptrend consolidation zone’ and is near breakout levels.

“Historically post-breakout, TCS has given at an average 80% upside; however, due to its large market-cap status, we expect an upside of about 60% leading to a target of ₹6,300,” said Dharan Shah, founder, Tradonomy. “Historically on average it has corrected about 25% from the previous top and consolidated timewise for around 2 – 3 years.

In the past three years, TCS shares have hovered in the ₹3,000-4,000 band. On Monday, the stock closed at ₹3,847.65. Shah said an up-move in the stock may not be immediate, but once the hurdle of ₹4,200 levels is breached, there could be sharper upsides.

IT stocks have fallen out of investors’ favour of late on growing uncertainty over the demand outlook in the US and Europe. So far in 2024, TCS shares have risen 1% while the Nifty IT index shed 4.7%.”Post the high in March the stock has corrected but the correction has been less compared to the other IT names,” said Ruchit Jain, lead research analyst, 5paisa. “The stock is at its 50% retracement level of ₹3,780 which is a strong support and indicates limited downside in price corrections.”While the stock is not at its breakout level yet, the downside is limited, he said. Analysts said the lack of clarity about the timing of the interest rate cuts in the US will cap upsides in the near term. “The market is expecting an interest rate cut by the US Fed which is why the downside in IT stocks such as TCS is limited,” said Jain. “However, once there is some clarity and certainty on when the US Fed is expected to cut interest rates, IT stocks are expected to rally, after brief consolidation.”

Staggered buying
“If the Nifty IT index moves up, then TCS is expected to outperform since the correction in the stock has been lesser compared to its peers, indicating relative strength,” said Jain. “IT sector has not contributed much to the recent upswing in the markets and investors can choose to buy TCS in a staggered manner till ₹3,700 levels.”