IT Stocks Outlook: Seen weak next week on bleak US econ

[B. Karthick]

IT Stocks Outlook: Seen weak next week on bleak US econ environment
Saturday, Aug 23

With no signs of recovery in U.S. economic environment,
information technology sector may continue to remain weak despite the
companies' valuations not warranting any further fall.
Even rupee's fall to 43.49 per $1 yesterday failed to provide
relief for the sector.
I think Infosys will continue to trade in the 1,550-1,700 rupees
range and all other shares will follow.
Some reports from the US are suggesting that the financial sector
is
still to undergo some more pain, as there are some defaults even in
the prime lending segments.
Talk of troubles in Lehman Brothers and Merrill Lynch, which could
result in a cut in business for a number of large cap IT companies
have not yet died down. Though this has been doing the rounds for over
a month, that it still persists has raised concerns.
A weak quarter for Wachovia and change in top management of the
company is also seen as a negative for a few IT companies, including
IT bellwether Infosys Technologies.
Satyam Computer Services, too, has been losing market cap on talk
that the company has deferred wage hikes.
Satyam would now be paying wage hikes in October, but they would
be with retrospective effect from July.
Satyam is not strapped for cash. So, there may be a reason
unlinked to fundamentals for the delay, since it is incurring the
entire cost of wage hikes, rather than trying to reduce it by one
quarter.
Yet, the company's shares have dropped nearly 8% since Monday.
Satyam's delay comes close on the heels of MindTree postponing
wage hikes to October, and we are guessing this could imply weak Jul-
Sep earnings.
Satyam does not even have too many operational levers left. Even
its offshore utilisation is 83%.
Several brokerage houses, including CLSA, lowered expectations
from Satyam, relative to peers, after the company detailed Apr-Jun
results. Satyam is now seen performing in line with peers rather than
outperforming them.

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

Company Aug 22 Aug 14 Change
(in %)
HCL Technologies 222.60 236.10 (-)
(5.7)
Infosys Technologies 1,694.00 1,693.50
0.0
Satyam Computer Services 386.55 412.95 (-)
(6.4)
Tata Consultancy Services 817.00 833.20 (-)
(1.9)
Wipro 416.50
429.40 (-)(3.0)

INDICES
CNX IT Index 3,829.40 3,907.40 (-)
(2.0)
NSE Nifty 4,327.45 4,430.70 (-)
(2.3)
BSE Sensex 14,401.49 14,724.18 (-)
(2.2)

End

B.Karthick
Research Analsyt.