IT Stocks Outlook: Down next week; HCL Tech likely to tumble

[suguhopes]

MUMBAI - Information technology shares are likely to trudge downwards
next week led by a sharp fall in HCL Technologies shares, after the
company reported a loss on its foreign exchange hedge ahead of its Apr-
Jun earnings.

"HCL Tech shares could drop anywhere between 5-7% when it opens on
Monday.

The company today said it expected a loss of $65 mln-75 mln in Apr-Jun
as rupee has depreciated against the dollar, and the company booked
its hedge at a higher rate.

The loss includes cash outflow and mark-to-market figures on its $1.7
bln hedge, as on June 30.

The sector will also be weighed by grim expectations of earnings,
after
Infosys Technologies' earnings today failed to cheer investors.

Next in the line of fire is Tata Consultancy Services that will detail
results Wednesday.

The company is seen reporting 1% sequential drop in net profit, but
fears of decline in pricing and a weak outlook for the financial year
have been heightened after the Infosys management said it has a
cautious outlook.

Infosys today reported Apr-Jun net profit of 13.02 bln rupees, sailing
past street expectations, but did not increase dollar-wise guidance
for the full year.

This was interpreted by investors as a reflection of pessimism towards
the later half of the year, during which the company had earlier
suggested growth would pick up.

The week will end with Satyam Computer Services declaring its Apr-Jun
results on Jul 18.

Satyam is seen outperforming peers by a margin, with near double-digit
sales growth.

Yet, amid concerns that engulf the sector, until the result, market
players will discount all positive triggers in the share.

Fears of some foreign exchange losses, and the likelihood of more
impact on future growth from pain in global financial markets is
likely to keep Satyam shares in the red for the entire week.

Valuations of the top five IT companies have been beaten
significantly,
so all investor focus in the sector will remain on them rather than
mid-cap shares.

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

Company Jul 11 Jul 4 Change
(in %)
HCL Technologies 238.65 236.10 1.1
Infosys Technologies 1,676.85 1,755.80 (-)
(4.5)
Satyam Computer Services 443.50 461.05 (-)
(3.8)
Tata Consultancy Services 798.60 844.50 (-)
(5.4)
Wipro 412.20 427.65 (-)
(3.6)

INDICES
CNX IT Index 3839.50 4000.80 (-)
(4.0)
NSE Nifty 4049.00 4016.00 0.8

BSE Sensex 13469.85 13454.00
0.1.

N.Sukumar
Research Analyst