IT Stocks Outlook: Up next week ahead of Q1 results

[B. Karthick]

IT Stocks Outlook: Up next week ahead of Q1 results
Saturday, Jul 5

Information technology shares are seen outperforming key share
indices next week in the run-up to the earnings season.
On Monday, indices are seen rising as investors are likely to take
fresh positions.
Inclusion of software development under the Industrial Park Scheme
of 2008 is likely to provide relief to the sector, as some may qualify
for tax sops beyond Mar 2010.
The industry enjoys tax exemption on exports under the Software
Technology Parks of India scheme that is due to expire in Mar 2010.

RESULTS
Infosys Technologies that is due to declare Apr-Jun financial
results Jul 11, may rise to 1,900 rupees on hopes the company will
reiterate back-ended growth in 2008-09 (Apr-Mar).
Uncertain global economy had forced most clients to postpone IT
spending decisions, resulting in weak growth for IT companies in Apr-
Mar. This could sustain until June.
Some statements from technology companies in the last two months
suggest there is relief in business environment, and growth may pick
up from September.
Satyam Computer Services is seen as a favourite, as the company is
growing faster than its peers, and is seen increasing its full year
guidance in dollar terms.
Among large-cap shares, Tata Consultancy Services is out of favour
as the company has high exposure to banking and capital market
clients.
These clients are seen most affected by the financial turmoil in
recent times, and the view is that many of them have cut prices.
Impact on billing rates will be key in this round of results,
because
the quantum of outsourcing is likely to increase, but pressure on
margins is to be watched.

MID-CAPS
Among mid-caps, i-flex Solutions is likely to remain in focus, as
an open offer from Oracle is expected before market opens Monday.
The open offer is likely to be priced at 1,650 rupees a share.
Shares of i-flex, however, have already gone up in anticipation of
the offer. Friday, the shares closed at 1,511.90 rupees on National
Stock Exchange, up 6.5% from Thursday.
Shares of Tech Mahindra and Patni Computer Systems are seen weak
as their Apr-Jun earnings projections are low.
Patni was supported on hopes of a buyback offer that has been
delayed. The company is seen losing business from ABN Amro, as the
Dutch bank has been taken over by Royal Bank of Scotland and two other
banks.

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

Company Jul 4 Jun 27 Change
(in %)
HCL Technologies 236.10 253.30 (-)
(6.8)
Infosys Technologies 1,755.80 1,705.45 3.0
Satyam Computer Services 461.05 439.50 4.9
Tata Consultancy Services 844.50 865.50 (-)
(2.4)
Wipro 427.65 440.70 (-)
(3.0)

INDICES

CNX IT Index 4,000.80 4,002.60 (-)
(0.0)
NSE Nifty 4,016.00 4,136.65 (-)
(2.9)
BSE Sensex 13,454.00 13,802.22 (-)
(2.5)

End

B.Karthick,
Research Analyst.