IT Sector Report for the week (09 - 13.07.2012)

[rupeedesk]

IT Sector Report for the week (09 - 13.07.2012)

Stocks of information technology companies are likely to be subdued for most part of next week as investors will turn cautious before announcement of the Apr-Jun earnings of sector leaders Tata Consultancy Services and Infosys, due on Thursday. However, if the broad market trades positive, any downside in these stocks would be limited. We forecast sluggish revenue growth (of (-)1% to 2% sequentially in dollar terms) for Tier-I IT companies as the macro outlook remains tough, and cross currencies impact the reported USD revenues for Q1 (Apr-Jun) negatively. TCS' net profit is seen rising 8% sequentially to 31.62 bln rupees and net sales are seen growing 11% to 147.35 bln rupees. We believe investors will have a greater focus on Infosys and TCS' outlook on demand, and many are anticipating a cut in Infosys' projection. IT had been a great place to hide given the rupee depreciation, but serious doubts about the demand scenario, especially from the BFSI (banking financial services and insurance) segment, have emerged. We believe that Infosys will announce another cut to its demand forecast to around 6% from current 8-10% and possibly trigger a second round of de-rating. Investors will also track the movement of the rupee against the dollar as software exporters get nearly 65% of their revenue from the US. In the week to date, the Indian currency has appreciated about 0.25% against the dollar.

TECHNICAL VIEW

Technically, the bias for Infosys, HCL Technologies, and Wipro appears to be weak, while that for TCS, Satyam Computer Services, and Tech Mahindra is rangebound. The CNX IT index also looks weak on the charts, and is likely to trade in a range of 5960-6170 next week. If the index slips below the lower end of the range, it could test 5800 in one to two sessions. 

By RUPEE DESK

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