IT Stocks Outlook: Range-bound to marginally positive next week

[B. Karthick]

IT Stocks Outlook: Range-bound to marginally positive next week


While rising inflation could help front line information
technology
shares register gains in the coming week, a weak performance by
global
financial sector giants Goldman Sachs and Morgan Stanley could pull
them down.
Rising inflation will keep rupee weak against dollar, which is
beneficial to IT companies. As they have already fallen a lot, there
may be
some buying interest in the shares, pushing them up. IT shares range-
bound
with a marginal upside in next week.
Investment bank Lehman Brothers this week reported a much larger-
than-
expected $2.8 bln loss for the second quarter.
For these IT companies, the financial sector is a major revenue
earner.
Lehman Brothers have registered poor performance in this quarter. If
Goldman
and Morgan also give poor numbers, most IT stocks may test bottom next
week.
However, once they hit the bottom, there may be a fresh spate of
buying
leading to a revival.
There is no scope of any short covering though, as there are very
few
short positions in these counters.
IT shares will continue to outperform the broader market in coming
quarters.
We expect absolute upside of 15-20% from current levels over the
next 12
months from these stocks.
Infosys Technologies, Satyam Computer, and HCL Technologies
as "overweight" while TCS and Wipro have an "equal weight" rating.
Weakness in the Indian unit has sustained so far in 2008-09, and is
likely to hold until the end of the quarter, increasing operating
margin on
export revenue for IT companies.
Since Apr 1, rupee has depreciated 6.6% to 42.93 rupees per $1.
In case there is more sentimental weakness in sectors such as
capital
goods and fast moving consumer goods, given inflation and other
economic
data, investors may opt for IT, where revenue visibility is higher

Week-on-week closing prices of key software shares, in rupees, on
National Stock Exchange:

Company Jun 13 Jun 7 Change
(in %)
HCL Technologies 289.40 313.25 (-)7.6
Infosys Technologies 1,866.65 1,993.55 (-)6.3
Satyam Computer Services 481.00 510.00 (-)5.7
Tata Consultancy Services 909.60 966.20 (-)5.9
Wipro 478.00 505.60
(-)5.3

INDICES
CNX IT Index 4322.70 4571.30 (-)(5.5)
NSE Nifty 4517.10 4627.80 (-)(2.4)
BSE Sensex 15189.62 15572.18 (-)(2.5)
End

B.Karthick,
Research Analyst.