Why We're Watching TCS And Infosys Ltd.

Here's the Nifty IT vs Nifty 100 ratio chart we've been keeping an eye on for the last two years. It's been unable to break out of this 13-year base, so let's take a look at what needs to happen for a breakout to eventually occur.

Click on chart to enlarge view. 

Here's the Nifty IT Index on an absolute basis. As long as prices are above 12,900, then there's an upward bias in the sector, but a breakout above former support/resistance near 14,800 needs to happen its trend to really reaccelerate to the upside.

And what could potentially drive that? The two largest components, Tata Consultancy and Infosys Ltd., which comprise 55% of the index's weightings, breaking out to new highs.

Here's Tata Consultancy back above support at 1,960 and pressing to new recovery highs. Stabilization above 1,960 and a test of its all-time highs near 2,300 would go a long way in helping the sector make new absolute and relative highs.

Here's Infosys Ltd., which is messy, but is also making new recovery highs and approaching resistance near 775. A test of that level and breakout to new all-time highs is needed if we're going to see the Nifty IT Index outperforming the broader market.

While the thesis for outperformance from the Nifty FMCG Index is more well-developed, the Nifty IT Index outperformance thesis is getting there and worth watching.

Keep an eye on Tata Consultancy and Infosys Ltd. in the days and weeks ahead to see if they can build on their recent strength and help push the sector to new heights. And rest assured we'll do a follow-up post if/when this thesis comes to fruition.

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Thanks for reading and please let us know if you have any questions!

Allstarcharts Team