IT Stocks Outlook: Tepid next week in line with broad market

[B. Karthick]

IT Stocks Outlook: Tepid next week in line with broad market
Saturday, Jun 28

Information technology stocks are likely to remain tepid in line
with the broad markets as investors await quarterly earnings of
companies.
Reports of further write-off of bad debt by Citi, and fears of a
takeover of Swiss bank UBS have once again heightened worries over IT
companies' earnings.
Infosys Technologies took a hit this week on reports HSBC may bid
for UBS, as the latter is a key client of the Indian IT major.
The drop in Infosys's share price has rationalised the valuation
gap
between the company and Tata Consultancy Services--the biggest
software exporter in the country.
TCS shares had been weak earlier because we said its Apr-Jun
earnings would be worse than its peers, owing to high exposure to
clients in the banking and capital markets sectors.

BILLING RATE WORRIES
We also fear billing rates in the technology sector may be under
more pressure than earlier conceived.
Investors expect companies to issue reassuring statements about
growth in the coming quarters, while detailing Apr-Jun earnings.
IT companies should at least maintain dollar-wise guidance and
increase rupee guidance for the sector to sustain current valuations
in a falling market.
Nonetheless, the sector is seen outperforming broad markets
marginally, as it is insulated from direct impact of factors such as
inflation and high crude oil prices, that are weighing on other
sectors.

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

Company Jun 27 Jun 20 Change
(in %)

HCL Technologies 253.30 266.20 (-)
(4.8)
Infosys Technologies 1,705.45 1,827.00 (-)
(6.7)
Satyam Computer Services 439.50 455.40 (-)
(3.5)
Tata Consultancy Services 865.50 863.85 0.2
Wipro 440.70 473.75 (-)
(7.0)

CNX IT Index 4,002.60 4,179.70 (-)
(4.2)
NSE Nifty 4,136.65 4,347.55 (-)
(4.9)
BSE Sensex 13,802.22 14,571.29 (-)
(5.3)
End

B.Karthick,
Research Analyst.