Traders have been building long positions in the Infosys stock and its futures contract in the run-up to its third quarter numbers on January 10. Infosys, which gained 2.6 per cent on Friday to end at Rs 3,565, is expected to gain as much as 8 per cent in a week, analysts say.
“The weekly structure on the stock indicates that the stock could touch levels of Rs 3,670-3,700 in the coming week as the underlying IT pack in itself is going strong. However, we do not expect the stock to go beyond these levels,” said Shubham Agarwal, vice president, senior technical analyst (equities), Motilal Oswal Securities.
Technical analysts said that market sentiment around the stock has continued to be positive on the back of improving outlook for the US economy and anticipated weakness in the rupee.
“The sector in itself has been gaining because the tapering announcement indicates an improvement in the US economy. This means higher technology spend by US companies, which is good news for Indian software companies like Infosys,” said Sonam H Udasi, head of research, IDBI Capital.
The US Federal Reserve announced a tapering of its $85-billion stimulus programme QE3, signalling a turnaround in the US economy. This could cause weakness in the rupee as foreign inflows reduce, which would further improve the prospects of the technology companies.
However, market analysts feel that the euphoria around the stock could be overdone as the stock is near its over-bought zone. They also said that investors were getting carried away by the positive outlook on the sector.
“Traders have been building long positions on the stock but it has nothing to do with the company’s result expectations. People want to go long on the IT sector as they consider it a safe bet. However, we believe the stock is long-heavy,” said Siddharth Bhamre, head of derivatives, Angel Broking.
At this point, analysts said that all the positives in the stock have already been priced in. A sell-off is likely, irrespective of the company’s third quarter performance.
“If the results are good, investors would look to book profits. On the other hand, poor results would see long positions in the system being reversed. Either way, we could see some selling,” added Bhamre.
Analysts expect the stock to fall to Rs 3,350-3,450 levels after the sell-off. At these levels, investors could look at accumulating the stock once again, they added.