IT stocks tumble: Infosys, Wipro, Tech Mahindra drop over 4%, IT index slips below 50-week EMA

IT stocks faced a sharp sell-off last week, with Tata Consultancy Services (TCS), KPIT Technologies, and others tumbling up to 8% to hit 52-week lows. The NIFTY IT index also slumped 8%, pressured by heavy losses in L&T Technology Services, Mphasis, LTI Mindtree and Tech Mahindra.

The decline comes amid signs of a potential slowdown in the U.S. economy. Consumer spending, which drives over two-thirds of the U.S. economic activity, fell by 0.2% in January—the first decline in nearly two years.

Adding to investor anxiety, U.S. President Donald Trump's decision to impose import tariffs on multiple countries has heightened fears of a global trade war. Experts warn that such measures could hamper economic growth and reduce IT spending—a negative development for Indian IT firms, which rely heavily on exports of IT services.

Stocks in focus

1. Infosys slipped over 4% on February 28, closing below the crucial swing low of ₹1,718. The broader trend remains weak as Infosys also surrendered its 50-week exponential moving average. In the upcoming sessions, traders should monitor the Infosys’ price action between ₹1,718 and ₹1,667. A decisive break of this zone with a strong candle will offer further insights into its direction.

2. Wipro slipped below its 200-day exponential average on February 28, closing under the crucial swing low of ₹280. The next key support for the Wipro lies around the ₹267 zone, while resistance is now positioned near ₹280 level.

3. Tech Mahindra came under selling pressure on February 28, slipping below the crucial support zone of its 200-day exponential moving average. The stock dropped over 6% to ₹1,487. In the upcoming sessions, the next crucial support is around ₹1,400, while resistance is now around 200-DMA.

Bearish outlook on Infosys, Wipro and Tech Mahindra

If you expect Infosys, Wipro and Tech Mahindra to continue bearish momentum, you can consider a long-put strategy. Let's break this down using Wipro as an example.

Wipro closed at ₹277.6 on Friday, and the ATM (at-the-money) strike is 277.5. If you buy an ATM put of March 27 expiry, the breakeven for this strategy will be ₹270, which is 2.9% from the closing price of Friday. If Wipro slips more than this, then the strategy will be profitable.

Bullish outlook on Infosys, Wipro and Tech Mahindra

However, if you anticipate a rebound in Infosys, Wipro, and Tech Mahindra, a long-call strategy could be a viable option. Let's understand this using the same example of Wipro.

With an at-the-money (ATM) strike of 377.5, if you buy an ATM call option, the breakeven point will be ₹287, which is 3.5% from Friday's close of ₹270.6. If Wipro rallies above this level, the strategy will be profitable.

Range-bound outlook on Infosys, Wipro and Tech Mahindra

Traders anticipating a range-bound movement following a sharp correction and a decline in implied volatility can consider an iron condor strategy. This strategy is most profitable when the stock remains stable within the short put and short call strike prices.

Conclusion

In summary, a long-put strategy benefits if the share price declines, while a long-call strategy enables traders to profit from upward moves. Options offer the flexibility to capitalises on different market conditions—whether bullish, bearish, or range-bound. However, past performance does not guarantee future results. It’s essential to evaluate risks carefully and have a well-defined risk management plan before executing any strategy.