Will TCS Q2 show set the tone for markets? Here’s how to trade the stock
TCS has been consolidating in a narrow range so far in the year 2017. It rose by about 6 percent compared to nearly 20 percent rally seen in the S&P BSE Sensex.
Tata Consultancy Services is scheduled to report its results for the quarter ended September later today, post market hours on Thursday.
The profit after tax (PAT) for the quarter is expected to increase 4 percent sequentially to Rs 6,183 crore and revenue may grow 2.6 percent to Rs 30,356 crore, according to an average of estimates of analysts polled by CNBC-TV18.
Revenues in dollar terms are likely to register a 3 percent at USD 4,731 million in the quarter ended September 2017, compared with USD 4,591 million in the previous quarter.
The stock has been consolidating in a narrow range so far in the year 2017. It rose by about 6 percent compared to nearly 20 percent rally seen in the S&P BSE Sensex.
The IT sector has been under pressure throughout this year weighed down by appreciating currency, demand environment, visa ruled and automation.
The anecdotal evidence suggests that TCS gave a negative return in 2 out of 4 times on the day of results while it slipped 3 out of 4 times post quarterly results, BSE data showed.
“If we analyze the behaviour of stock for last four quarters stock witnessed cool off action post results. The corrective action generally comes in the range of 4-8 percent post result outcome,” Rajesh Palviya, Head – Technical & Derivative Analyst at Axis Securities Ltd told Moneycontrol.
“However, post-consolidation of 15-20 days after results outcome, the stock bottoms out and has shown recovery and witnessed around 8-14 percent gain from the bottom made after results. Broadly we can say that the stock manages to recoup all its losses which had come after the announcement of quarterly results,” he said.
Chart pattern indicates that if the stock faces any profit booking, it may find support around Rs 2420-2400; however, any breakdown below Rs2400 would accelerate the selling in stock which may drag it towards Rs 2330-2300 in short-term, suggest experts.
Since the last three months, the stock has undergone a consolidation phase wherein the prices have traded in a broad range of Rs 2,400 to Rs 2,600. This consolidation phase seems to be a time-correction in the prices.
For the past 3-4 quarters, TCS has been trading with a positive bias. It is also part of a triangle and is trading near its apex suggesting that a breakout or a breakdown is on cards.
The stock remained lacklustre for the past few months is likely to find a directional move.
“Immediate resistance is seen at 2550 levels, above which it can bounce till 2700 levels, where Major resistance is seen. However, for the past 3 quarters, while Stock Price have been Moving Higher, Volume has been Declining,” Pragnesh Jain, AVP Technical Research - Institutional Equities, Systematix shares told Moneycontrol.
“We have seen no major underlying strength in the trend, signaling that, even if the breakout happens it won’t sustain at higher levels for long, unless breakout happens with decent volumes,” he said.
Jain further added that failure to breakout above Rs 2550 can see the stock remain under pressure & a breakdown below Rs 2420 will lead to weakness to the tune of 10 percent in the stock.
We have collated views from various experts as to how to trade the stock on the result day:
Analyst: Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in
There may not be any negative surprises on this counter as negativity surrounding the sector is well captured in the prices. Technically, since November 2016 low of Rs 2051, this counter appears to be moving in some sort of ascending channel suggesting a durable bottom in place around those levels.
Besides, the last couple of weeks price behaviour after retracing 62 percent of its last leg of the rally from the lows of Rs 2323 is pointing towards base building around Rs 2424 levels.
Hence for positional traders, it is looking like a good buying opportunity for a target of Rs 2650 with a stop below Rs 2420 on a closing basis.
Analyst: Aditya Agarwala, Technical Analyst, YES Securities (I) Ltd
TCS has been oscillating in an Ascending Triangle pattern i.e. making higher lows but highs are locked at the same level. The neckline of the pattern is placed at Rs 2550 and a breakout on healthy volumes from the neckline can trigger a trend reversal taking it higher to levels of Rs 2670.
Historically post quarterly result stock tends to enter into a corrective phase, keeping this in mind a Short Strangle strategy can be exercised i.e. Selling Out of the Money (OTM) CALL and PUT Options. An investor can continue to hold the stock as the major trend is still bullish keeping a target of Rs 2670-2870.
Analyst: Ruchit Jain, Equity Technical Analyst, Angel Broking Pvt Ltd
The prices are vacillating in a range of Rs 2400-2600 since last three months. A trended phase in the stock is expected only post breakout of the mentioned range.
Hence, while we are not expecting a significant move on the result day, positional traders and investor can continue to hold their existing long positions.
It is also advisable to keep a stop loss below Rs 2400; because a violation of the mentioned support could then lead to a corrective leg.
Analyst: Rajesh Palviya, Head – Technical & Derivative Analyst at Axis Securities Ltd.
We can expect TCS to remain in the range of Rs 2300-2700 for few more months and consolidates further.
Trading Strategy 1:
Buy on dips: Looking at the behavior of stock Post results, if the stock reacts negatively one can look for buying it around Rs 2420-2400 followed by Rs 2350 levels with a final stop-loss of Rs 2300 to play for a pullback action with a target of Rs 2450-2500 in 1-2 months time frame.
Trading Strategy 2:
Buy on a breakout: As mentioned the stock is in process of forming a contracting triangular pattern on the weekly chart, so if it manages to break out above Rs 2530-2550 one can buy the stock from a near term trading perspective with a target of Rs 2600-2630 and stop-loss of Rs 2500.
Trading Strategy 3:
If we look at the long-term structure of the stock, though it is in bullish trend it faces multiples resistance at Rs 2730-2750 on higher degree chart.
Looking at the underperformance of IT sector, it looks unlikely that TCS would cross 2700-2730 in the near/short term.
If the stock rallies towards Rs 2630-2660 range one can book profits of their holding positions or future traders can look for going short in the stock on the higher side with a stop-loss of Rs 2700.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.