TCS vs Infosys vs Wipro vs HCL Tech: Derivatives outlook on Tech stocks ahead of Q1 earnings results

The IT index has been volatile in the July series, with open interest additions mostly on the bullish side. A look at what experts say

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The results seasons in IT services sector begins this week with large cap tech companies such as TCS, HCL Tech, Wipro and Infosys announcing their results. IT stocks have underperformed in the recent rally as analysts expect revenues to be under pressure because of a likely recession in the United States.

Derivatives outlook for IT sector

The IT index has been volatile in the July series, with open interest additions mostly on the bullish side. Some short covering occurred at the start of the series, followed by long additions in recent sessions.

“The major trend for Nifty IT remains consolidative and could only see deviation if the recent base at 28,300 gets breached. On the upside, its immediate resistance zone still holds at 31,200,” stated Sacchitanand Uttekar, Vice President-Research & Data Analysis at Tradebulls Securities. He believes that TCS, Infosys, and Wipro, have been oscillating lower and have yet to experience a major reversal on the upside.

Arun Kumar Mantri, Founder of Mantri FinMart, believes that among the stocks in the benchmark index, Infosys and Tech Mahindra are expected to outperform, followed by mid-cap IT counters such as Coforge and Mphasis. He further stated that most of the negatives are already priced in, and the downside seems to be capped in the near term unless any major negative developments occur on the earnings front. HCL Tech has witnessed massive short additions, and any positive surprise may trigger short covering in the stock.

According to Santosh Pasi, derivatives trader and analyst, “Considering CNX IT, it is looking sideways to a bullish outlook based on the weekly timeframe.”

Expected positions, target support and resistance levels ahead of earnings results

Tata Consultancy Services

“Based on the chart analysis, TCS is showing a sideways trend and is most likely to continue. For TCS, we are expecting it sideways between 3.200 and 3.400. We will prefer to go for non-directional strategies like Short Iron Condo,” according to Santosh Pasi

As per Arun Mantri, “TCS is exactly placed in the mid of the trading band with very lighter positions in the July series. The counter may undergo range expansion in the near term after the recent consolidation and muted price action. The key support is placed around 3,190 and 3,150 while resistance is around 3,320 and 3,380 levels.”

HCL Tech

HCL Tech is currently around the cluster of major short-term moving averages and has witnessed significant short additions in the last few sessions, with heavy call writing in the at-the-money call options. The counter has support around the 1,070-1,080 area, while resistance is in the 1,160-1,200 range. Any positive development may trigger a short squeeze in the counter, and traders should maintain a clear focus, according to the founder of Mantri FinMart.

Meanwhile, Santosh Pasi expects sideways to bullish momentum for HCL Tech, with support at 1,100 and resistance around 1,200 levels

Wipro

According to analysts, Wipro is an under-owned counter in the derivative space and may witness some sparks if the stock decisively crosses the 400 mark. Historically, in the last two quarters, the stock has provided positive returns in the range of 2-3 percent post-earnings. The support for the stock is around 380, while resistance is at 415-425 levels. Analysts expect the stock to remain between 370 and 410.

Infosys

For Infosys, analysts expect a bullish trend and anticipate it to reach a target price of Rs 1,400. The results for the counter are due in the middle of the next week, and its support levels are placed at 1,320 and 1,295, while resistance is around 1,370 and 1,420 marks.

Option Trading Strategy Recommendation

A short iron condor spread is a four leg strategy wherein, the investor sells one call while buying another call with a higher strike and sells one put while buying another put with a lower strike. Typically, the call strikes are above and the put strikes below the current level of underlying stock, and the distance between the call strikes equals the distance between the put strikes. All the options must be of the same expiration.

The Broken Wing Condor Spread is simply a condor Spread which has risk inclined to one side.

The protective put strategy is a hedging strategy used to protect an existing long position in the market. In a protective put the holder of a security buys a put option to protect himself against a drop in price.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.​​​​​​​​​​​​​​​​​​​​​