Tata Consultancy Services (TCS), a global leader in IT services, consulting and business solutions, has rallied by over 20 percent so far in 2021, compared to the over 18 percent rise seen in the Nifty50, and over 35 percent gain in the S&P BSE IT index.
The stock has been underperforming, compared to its sectoral benchmark so far this year, but the recent breakout seen in TCS, after roughly 2 months of consolidation, suggests that the rally could extend towards Rs 4,000, suggest experts.
TCS, the second-largest company with respect to market capitalisation, hit a fresh 52-week high of Rs 3,492.50 on Monday (August 16, 2021). The stock bounced back after hitting a low of Rs 3,132 on July 28.
Stock falls after Q1 results, rallies in August
TCS reported a consolidated profit of Rs 9,008 crore for the quarter ending June 2021, registering a 2.6 percent sequential decline due to lower other income, and missing analysts' expectations.
TCS appears to have failed to impress the market, post the June quarter results. The stock has been under selling pressure since then. It fell nearly 3 percent in July, and picked up momentum in August, rallying over 9 percent, data showed.
Prices were in consolidation since January 25, 2021, and the recent price action has decisively broken out of long-term consolidation with good volumes.
Ascending triangle formation
“A complete consolidation resembles an ‘ascending triangle’ formation, marked with A-B-C-D-E. Ascending triangle is formed when support levels keep rising (marked with A-C-E) and resistance level remains almost at constant level (marked with B-D),” Jignesh Pandya, Sr Research Analyst at Monarch Networth Capital Ltd, said.
“This setup indicates strong buying at lower levels. Momentum oscillator Relative strength Index (RSI) is sustaining above the 70 levels, which indicates further build-up in momentum,” he said.
Pandya recommends investors to buy TCS at the current market price or on dips, keeping a stop loss at the Rs 3,100 level and a target at the Rs 3,800 – 4,100 levels. The target translates into an upside of 10-18 percent from a closing price of Rs 3,461 on August 13.
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