Jul 13, 2012 10:44 AM IST | Source: CNBC-TV18

TCS to replace Infosys as top pick in IT sector: Manghnani

Anil Manghnani of Modern Shares & Stock Brokers believes TCS will benefit from Infosys‘ underperformance, as investors shift their focus to the new leader in the IT space.

The past few weeks have been characterised by range-based trading for the Indian market. Despite all the newsflow, the Nifty has strongly held on to the range of 5100-5300 for the short term, and the view on the street is that this tight trade may continue for a while longer.

Speaking to CNBC-TV18, Anil Manghnani of Modern Shares & Stock Brokers says that 5200 and 5300 are the key levels now in terms of support and resistance on the Nifty. “Despite all the FII buying in July, the market is not able to trade consistently above 5300, which is a surprise,” he said.

Meanwhile, since the breakout happened post the 5200 level, Manghnani sees this as a strong support for the market. “In any sort of call, bulls need to protect that level, because if that breaks, then I think even short-term traders will lose hope and start to sell off,” he said.

Speaking about the IT sector, which will be abuzz post the results of two majors yesterday, Manghnani says Infosys may have lost its position of leadership in the market. “It now probably becomes a trading stock rather than core portfolio holding,” he said. On the other hand, he says TCS will benefit from this because it will be everyone’s first choice in the IT industry.

Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee.

Q: What kind of supports do you see for the Nifty and in the near-term is 5400 looking like a difficult mountain to climb over?

A: I think the two key levels are now well defined. I think 5300 is clearly the major resistance for the market. Yes, we have traded above it, but every time it has broken it has not convincingly gone past it. So in any pullback, that will be the key level to watch out for.

But I have always maintained that 5200 for me is going to be the main level. I am surprised because normally FII buying always overshadows domestic fund selling, but that hasn’t happened this time. All the buying of the FIIs, the Rs 6,500 crore in July, has happened post the 5200 breakout. So even with so much buying the market is not being able to trade consistently above 5300, which is a surprise. But since the breakout did take place at 5200, I think that is going to be the key level for the bulls. In any sort of call they need to protect that, because if that breaks, then I think even short-term traders will lose hope and start to sell off.

So keep an eye on 5200; that should be your positional stop because below that it opens a downside of 5,127 and could even stretch all the way to 5060. So 5200 and 5300 are the key levels now in terms of support and resistance.

Q: How do you approach the IT index? Any confirmatory signs from yesterday or would you wait to see how the space reacts to TCS today?

A: I think I will look at the individual levels. For Infosys, it is the second quarter in a row that you’ve seen a sharp correction post its numbers, so it has probably lost its leadership. I think it is going through what HUL did five-seven years back; it used to be your core portfolio holding but then it just gave up after that. I think the same thing is happening with Infosys. It now probably becomes a trading stock rather than core portfolio holding. For Infosys Rs 2200 remains the key levels because that is where it hit last quarter post the numbers and that is close to where we hit yesterday. But if it starts to break Rs 2200 then I think it’s headed towards Rs 2000.

Wipro is another one that has cracked quite disastrously in the last 10 days. It is at a major support at Rs 353, which is a major moving average. But if we look at the momentum indicators then one would start to get worried. If there is any shocker on the numbers and it breaks Rs 353, it could head back all the way to Rs 310.

TCS is the difficult one to call because if you look at the charts one would say it is over stretched and Rs 1290 is the problem area. But it might just continue to benefit from the fact that there is no alternative now. If funds want to hold IT, the largest stock is TCS.

Q: Any positional call you would take for this series or do you think it’s just too uncertain right now and its not clear which way the Nifty seems to be pushing or have momentum?

A: I am surprised that after the major breakout we had from 5,150 to 5,280 in one day, and with tremendous buying from the FII front, the market has not been able to cross 5,300 decisively. I know it is a major 61.8 Fibonacci retracement, but I thought with that kind of buying and with the rupee stabilizing you would expect the market to have gone to 5,420 rather easily.

If it pulls back, which nobody should be overly concerned about, the market has rallied from 4,770 to 5,350, so that’s a big move. Even if it were to do a 50% correction of this entire move, which takes us to about 5,060, it won’t damage the overall trend. Maybe it will allow for some more money to come in which is sitting on the sidelines. The way the FIIs are pumping in, I feel if the market were to correct they should even come back with a bigger bang. So even if we were to go to 5,060 I still think it will be a buying opportunity for this series.

I am not putting too much attention to the Presidential polls because in the long run they just fizzle out, market expects too much and nothing happens. So do not look at that, just look at an opportunity that if the market does correct it gives another chance to buy.

Q: You are buying high beta names like DLF?

A: Just for a trade. With the market collapsing quite sharply yesterday you would rather associate DLF with a bigger fall. But it regained all its losses intraday. The good support is Rs 205 and it bounced from Rs 206. So a trading move back to about Rs 218 with a major target still at Rs 226 is possible.

Q: Have you had a look at its peer Unitech?

A: Yes, but when I look at the overall chart, the way it collapsed from Rs 100 level a few months back to Rs 20 does not bode well. It is still in group of infrastructure stocks like GMR, Suzlon or Lanco where they are trying to make the base but they still have a long way to go. So I still believe that if you are looking at realty the top names still remains DLF. DLF has spent a lot of time between Rs 170 and Rs 180 which gives me some comfort level that maybe it’s made a base there and the worse is over for DLF.

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