IT Stocks Outlook for the week (21-24.08.2012)

[rupeedesk]

IT Stocks Outlook for the week (21-24.08.2012)

Stocks of domestic information technology majors are expected to move in a narrow range next week as the rupee is steady against the US dollar. Today, stocks of most companies in the sector ended higher from last Friday because of positive cues from Asian markets and stability in global markets.

   

Most information technology majors have already announced their Apr-Jun earnings. Overall, the outlook on the sector is positive but incremental gains in their stocks are not seen too high.

    

Although demand in the sector has slowed, companies focusing on gaining market share are expected to put up a good performance going forward, Most of bullish on Tata Consultancy Services and HCL Technologies stocks due to greater momentum in the companies' business, their high visibility in the international markets, and improvement in revenue and earnings growth in Apr-Jun.

Stocks of HCL Technologies, which has a 'low margin' strategy, and Tata Consultancy, which has tightly run operations, are the preferred picks in the information technology basket. Due to Infosys's low cost efficiency, the company's performance may suffer going forward.

Infosys's continued underperformance resulted in its PER (price-to-equity ratio) premium shrinking relative to peers such as HCL Technologies; and though the company is quoting at historic low valuations (excluding a brief period post the credit crisis in CY08), we do not expect the stock to get re-rated in the short term.

Major technology companies' volume growth improved sequentially in Apr-Jun. "Though delays in client decisions continued to be a concern, TCS and HCL (Technologies) reported a volume growth of 5.3% and 4.6% , respectively.

Infosys's volumes grew 2.7% in Apr-Jun after declining 1.5% in Jan-Mar. "However, Wipro continued to under-perform its peers and reported a volume growth of 0.8% in 1QFY13--the third successive quarter of below peer volume growth. (The) Company's volume growth has also been the lowest among peers in nine of the past 14 quarters.

By RUPEE DESK

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