Aniket PujariIndian IT stocks bled on Wednesday, February 4, tracking a selloff in US tech shares and concerns over new AI tools launched by Anthropic. The tools can automate tasks in legal, compliance, marketing, and data analysis—segments where IT services firms generate steady revenues. A stronger Indian Rupee added pressure, as it typically weighs on margins for export-focused companies.
Abhinav Tiwari, Research Analyst at Bonanza, said, “We expect the reaction on Wednesday was extreme and it will settle in a day or two because this will not impact the fundamentals on an immediate basis.”
He noted that fears around AI disrupting outsourcing models triggered selling in Indian IT ADRs, but most contracts in the sector run for 3–5 years, limiting immediate earnings risk. While valuations remain stretched and rating changes may occur, he believes the selloff could stabilise as investors refocus on earnings.
Nifty IT Technical Outlook
The sharp breakdown in the Nifty IT Index has forced a complete reset in how traders and investors approach the sector. What looked like a powerful bullish formation only days ago has now turned into a technically weak structure. Analysts say this is a meaningful technical event that demands close tracking of levels and stock-specific behaviour.
Anand James, Chief Market Strategist, Geojit Investments Limited, said, “Nifty IT Index has had a dramatic turnaround in fortunes with today’s +6% fall, as it had appeared to enroute a powerful upside, having completed a near cup and handle bullish breakout.”
He explained that with the fall, the index has slipped below its 200-day SMA, creating what he described as a very bearish setup. However, he highlighted that the index is currently positioned at a horizontal support formed during last November’s consolidation, and since the fall has been abrupt and acute, a reversal could still play out if the Nifty IT index manages to move back above 37,800 in the coming sessions.
Stocks to be impacted: James further observed that stocks such as TCS, Infosys, HCL Technologies, and Tech Mahindra have reversed from recent highs on both weekly and daily charts, backed by strong volumes, indicating the onset of profit booking. He added that Wipro and LTIMindtree have registered a weekly MACD bearish crossover, reinforcing the possibility of deeper corrections. Importantly, he noted that TCS, Infosys, and Wipro — which together form nearly 70% of the index weight — have broken below their respective 100-day and 200-day moving averages, highlighting underlying weakness.
However, HCL Technologies and Tech Mahindra are still holding above key moving average supports, and a breakdown there could add further downside pressure.
Echoing similar technical view, Sachin Gupta, Vice President – Research, Choice Broking, said, “From a technical standpoint, the damage is significant. The index decisively breached its 200-day simple moving average on heavy volumes, forming a large bearish gap-down. This gap now represents a strong overhead resistance zone around 37,200. Momentum indicators deteriorated rapidly, with the 14-period RSI sliding from a neutral 54 into oversold territory, reflecting heightened fear and capitulation.”
Given this setup, he said the earlier “buy-on-dips” approach is no longer valid and the trend now favours a “sell-on-rallies” strategy. According to him, the index may drift toward the 35,500–34,800 support zone where stabilisation attempts could emerge.
Stocks to buy post IT selloff
Tech Mahindra’s price behaviour resembles a classic bull-trap. After touching a 52-week high of ₹1,854, the stock reversed sharply toward the ₹1,600 region. On the weekly chart, this move formed a bearish engulfing candle, erasing nearly a month’s gains in one session.
Open interest surged by over 10% even as prices fell, indicating aggressive fresh short positions. This price–OI divergence strengthens the bearish near-term outlook. The ₹1,560 level stands out as a key support that could offer temporary relief and possibly a minor bounce. However, unless the stock establishes a firm base above this level, the structure remains fragile. Traders are advised to prioritise disciplined risk management and continue to adopt a sell-on-rallies approach, with downside risk persisting toward the ₹1,560 support.
Within the IT pack, HCL Technologies has shown notable relative strength. While the broader index declined nearly 7%, HCL Tech remains the only major heavyweight still trading above its 200-day moving average near ₹1,580.
Sachin Gupta added, “Within the IT space, HCL Technologies continues to demonstrate notable relative strength while the broader index remains under significant technical pressure.”
Traders are advised to maintain long positions as long as the stock sustains above the 200-day DEMA. Immediate supports are seen at ₹1,580 and ₹1,530, while the stock has the potential to revisit the ₹1,660 and ₹1,700 zones in the near term.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
