Technical Check: 60% in 2021! Base above 50 Days EMA in Tech Mahindra has set stage to push stock in new orbit

Tech Mahindra Ltd rallied by over 60 per cent so far in the year 2021 compared to 24 per cent upside seen in the Nifty50, and 47 per cent rally seen in the NiftyIT index.

The IT major with a market capitalization of Rs 1.5 lakh cr hit a fresh 52-week high of Rs 1637 on 3 December, but since then it went under some consolidation.

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The stock is trading well above the short-term, and long-term moving averages such as 30,50,100 & 200-Days Moving Average as well as Exponential Moving Averages.

The stock retested its 50-Days EMA back in July 2020 on the weekly charts but since then Tech Mahindra is trading well above this crucial short-term moving average. The stock briefly went under 50-Days EMA during March-July period.

At current levels, the stock seems to be consolidating gains near 52-week highs and dips can be used to create long positions for a target of 1850 that translates into an upside of over 15 per cent from Rs 1606 recorded on 8 December, suggest experts.

Tech Mahindra (TechM) has over 1.2 lakh employees across 90 countries serving 1000+ clients with higher exposure to Telecom (40% of revenues). Apart from telecom, the company caters to BFSI, Manufacturing & Retail.

Tech Mahindra has grown organically & inorganically (dollar revenue CAGR of 5.6% over past 5 years). 5G constitutes 20 per cent of the CME (Communications, Media & Entertainment) business while 50 per cent of all network services business is now 5G, ICICIdirect said in a note.  

Management indicated that 5G for communication has current run rate of US$500mn. The company’s CME vertical would focus on i) digital transformation ii) Network & 5G services iii) BPS iv) Telecom engineering services (TES)

Tech Mahindra's share price has grown by 4.2x over the past five years (from 373 in Nov 2016 to 1,585 levels in Nov 2021. “We remain positive on the stock and maintain BUY rating. We value Tech M at Rs 1860 i.e. 25x P/E on FY23E EPS,” added the note.

The IT Index has undergone healthy consolidation over past two months after witnessing relative outperformance during CY21.

Within the IT space, ICICIdirect remains constructive on Tech Mahindra as it has been relatively outperforming its peers while sustaining well above its 50 days EMA which has been held since May 2020 and is currently consolidating at all time high (1638).

“We expect it to log a resolute breakout from 2 months consolidation and accelerate relative outperformance. We expect stock to resolve higher and gradually head towards Rs 1850 as it is 138.2% extension of mid-October rally (1360-1630),” added the note.

The key point to highlight during recent consolidation above 50 days EMA is that over the past six weeks stock has retraced 61.8% of the preceding three weeks rally (1360-1630).

The slower pace of retracement signifies a robust price structure that augurs well for the next leg of the up move.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)