IT Stocks Outlook: Range-bound next wk on weak outlook by major cos

[B. Karthick]

IT Stocks Outlook: Range-bound next wk on weak outlook by major cos
Saturday, Jul 19

A disappointing earnings guidance for Jul-Sep from major software
exporters Wipro and Satyam Computer Services may keep information
technology shares range-bound.
Bleak outlook provided by technology majors belied hope that
Indian
outsourcing sector will recover in second half of 2008.
Satyam said its dollar-denominated revenue would grow 1.3-2.3% in
Jul-Sep, while Wipro has guided for 2.06% growth in combined IT
revenues.
In addition, with possible decline in crude oil prices next week,
there
could be a portfolio churn in the technology sector.
Among shares in the sector, we expect some buying in Infosys
Technologies, as the company has the most aggressive growth forecast,
lowest foreign exchange hedge, predictable accounting, and margin
management.
Tata Consultancy Services is likely to continue trading at a
15-16%
valuation discount to Infosys, but Satyam, which was trading at par
with TCS earlier, would begin to trade at around 5% discount next week
onwards.
With four top IT companies giving weak outlook, investors are
unlikely to pay attention to mid cap shares in the sector.
Movement in mid cap shares is likely to remain stock specific, and
gains would solely depend on news from individual companies.
Losses due to foreign exchange hedges are seen weighing on
companies' earnings, leading to further fall in mid cap shares.
This week MindTree Ltd reported a net loss of 129.60 mln rupees
for the first quarter ending June due to foreign exchange losses
arising out of rupee depreciation against the U.S. greenback.
Tech Mahindra, NIIT, and Patni Computer Systems are key mid cap
companies that will detail results next week.

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

Company Jul 18 Jul 11 Change
(in %)
HCL Technologies 202.05 238.65 (-)
(15.3)
Infosys Technologies 1,547.40 1,676.85 (-)
(7.7)
Satyam Computer Services 383.55 443.50 (-)
(13.5)
Tata Consultancy Services 793.85 798.60 (-)
(0.6)
Wipro 366.25 412.20 (-)
(11.1)

INDICES
CNX IT Index 3,571.60 3,839.50 (-)
(7.0)
NSE Nifty 4,092.25 4,049.00 1.1
BSE Sensex 13,635.40 13,469.85 1.2
End

B.Karthick,
Research Analyst.