Double Bottom: F&O Stock
is Reversing from 52-Week lows
Today, IT stocks are trading in the green zone, for a change. The last year was not a good one for this space with the Nifty IT index losing 26.55%, compared the to broader market which remained almost flat. The entire sector had been hammered last year on account of the rising interest rate scenario across the world.
As the rate hike cycle is expected to peak out this year, the IT space might turn out to be one of the best sectors in 2023, especially on account of their beaten-down prices. One counter that is trading near its 52-week lows and staging a comeback is Mphasis Limited (NS:MBFL).
Mphasis is a midcap IT counter with a market capitalization of INR 37,151 crores. Despite clocking a 23% YoY revenue growth in FY22 to INR 12,121.89 crores which was a record for the company, its share price tanked 42.4% in the last one year, even underperforming the Nifty IT index. The FY22 earnings per share (EPS) is also the highest ever, at INR 76.31, all thanks to a 17.5% jump in net income to INR 1,430.88 crores.
The stock is also on the buying list of FIIs as they hold a 20.71% stake in the company, as of September 2022, which is an uptick from 20.48% in the preceding quarter. On the other hand, DIIs are increasingly ramping up their stake every quarter, from 4.36% in September 2021 to 5.84% in September
Image Description: Daily chart of Mphasis
Coming to the daily chart of Mphasis, there’s no doubt that holding this stock in 2022 was painful. Almost half of the capital erosion is hard to digest. But it seems like these beaten-down levels are not to exit but to capitalize on the future trajectory. Over the last few months, the stock has turned sideways, totally refusing to give up its important support zone of INR 1,900. There have been multiple instances that the stock took support from here and bounced back. Although the demand has not been strong enough to change this sideways trend into an uptrend, still the prior one-sided fall has been curbed.
Not yet confirmed, but the stock seems to be making a double bottom formation at the lows which is a prominent indication of a trend reversal. The first bottom was marked on 23 November 2022 and the second one on 19 December 2022. The formation would be confirmed once the stock surges past the peak of INR 2,176.95, marked on 5 December 2022. The best part about this counter is that it is currently trading at the very bottom which makes the risk-to-reward ratio quite lucrative.
If the stock breaks below the crucial support of INR 1,900 - INR 1,890, then the downtrend might resume again.
