IT Stocks Outlook: Seen out-performing broad market next week

[K.Karthik Raja]

IT Stocks Outlook: Seen out-performing broad market next week

MUMBAI - Information technology shares are seen out-performing the
broad market next week as the sector is trading at low valuations, and
most negative news has already been factored in.
Investors are hoping against hope the finance minister may
announce an extension of tax sops for IT exports in the Union Budget
due Feb 29.
At present export, revenue for software vendors is exempt from tax
under the Software Technology Parks of India scheme that has a sunset
clause for Mar 2009.
While a blanket extension of the STPI is unlikely, at least some
relief for smaller companies may be offered.
However, in 2007, when Finance Minister P. Chidambaram had imposed
minimum alternate tax on the software industry, this was a move to
increase taxation on the sector gradually, rather than a steep hit in
2009-10 (Apr-Mar).
The view that sharp appreciation in the rupee over the past one
year may deter government from raising taxes next financial year.
However, if last year's budget is any indication, tax on IT
companies may rise. Anticipated news flow on ramp-down in IT business
from large overseas companies is likely to keep sentiment tame towards
the sector.
Tata Consultancy Services has indicated two of its Wall Street
clients may be cutting their businesses.
According to street talk, the clients may be Merill Lynch, Morgan
Stanley, or Citigroup. Other outsourcing partners of these companies
may be hit too.
.
EDUCATION & GOVERNMENT
Since this is a pre-election year budget, investors expect an
increase in allotment to education programmes.
Companies such as Educomp, Everonn, NIIT, Aptech, and Core
Projects are likely to benefit from this.
On the other hand, any rise from increase in education budget will
be purely sentimental, because government is yet to spend the
amount allocated for the current financial year.
TCS, CMC, and 3i Infotech may also benefit in case of an increased
allocation to e-governance projects, as these players are well
entrenched in the space.

OUR RESEARCH SUGGESTIONS.

Tech Mahindra shares, which have been beaten down significantly on
talk the company may be losing revenue from its top client BT
(formerly British Telecom), may get some relief next week.
The Suggestion includes talk from a BT official.
Shares of Tech Mahindra yesterday ended at 691.50 rupees on
National Stock Exchange, down 1% from Thursday.
HCL Tech is also holding an research call to detail impact from
the $40 mln (1.6 bln rupees)acquisition of Capital Stream, which it
had announced Wednesday.

Week-on-week closing prices of key software shares, in rupees, on
National Stock Exchange:
.
Company Feb 22 Feb 15 Change
(in %)
HCL Technologies 270.60 274.45
(1.4)
Infosys Technologies 1,580.65 1,565.40
1.0
Satyam Computer Services 437.75 437.55 0.0
Tata Consultancy Services 900.55 872.70 3.2
Wipro 426.80
420.60 1.5
.
INDICES
CNX IT Index 4,017.30 3,956.60
1.5
NSE Nifty 5,110.75 5,302.90
(3.6)
BSE Sensex 17,349.07 18,115.25
(4.2)


K.Karthik Raja
www.kences1.blogspot.com