IT Stocks Outlook: In line with mkt next week on lack of triggers

[K.Karthik Raja]

IT Stocks Outlook: In line with mkt next week on lack of triggers
Friday, Feb 29

CHENNAI - Information technology shares are seen moving in line
with the broad markets next week due to lack of triggers,The sector
shares are priced attractively as even bellwether Infosys is
now trading at 16-18 times one-year forward (2008-09) earnings
estimates, as against 24-26 times a year ago.
However, a lackadaisical approach of clients when it comes to
spending in 2008 is weighing on the sector.
While there have been higher allocation for 2008, IT companies are
saying the clients have been reluctant to spend upfront.
Tata Consultancy Services said over two weeks ago that two of its
Wall Street clients had deferred spending plans in Jan-Mar.
Polaris too said some of its clients were holding back on some
projects. We widely believe that Citigroup could be one of the
companies delaying projects for TCS and Polaris.
Investors suspect that other financial institutions are likely to
follow
suit. This could be bad news for the Indian IT sector as banking,
financial services, and insurance account for over 35% of the total IT
outsourcing to Indian companies.
In February, Gartner had said it was recommending clients to work
out an IT budget factoring in the cutbacks if they were to happen and
separating mission critical expenditures from others.
Perhaps companies have taken the cue, and while actual expenditure
allotment is in continuum with 2007 budgets, they are keeping large
spends pending until there is clarity on the U.S. economic status.
Investors will remain hawkish on the sector until Jan-Mar earnings
and 2008-09 earnings projections are known in April, analysts said.
Infosys's guidance for the next financial year could provide a
trigger to the sector, although at present, after factoring in
weakness from a U.S. recession, the company's revenue growth in
2008-09 is seen growing around 22%.
At present, We are also concerned due to repeated indications that
campus recruitments by some IT companies are being deferred and wage
hikes are likely to be lower in 2008-09.
Both TCS and Infosys expect wages to rise 10-13% this year, from
13-15% a year ago.
At an analyst meet TCS had also indicated the hikes could
eventually be as low as 8-9%.
Week-on-week closing prices of key software shares, in rupees, on
National
Stock Exchange:
.
Company Mar 7 Feb 29 Change
(in %)
HCL Technologies 273.40 277.65 (-)
(1.5)
Infosys Technologies 1,430.55 1,548.20 (-)
(7.6)
Satyam Computer Services 419.90 436.90 (-)
(3.9)
Tata Consultancy Services 846.15 877.40 (-)
(3.6)
Wipro 416.80 437.05 (-)
(4.6)
.
INDICES
CNX IT Index 3,762.05 3,984.50 (-)
(5.6)
NSE Nifty 4,771.60 5,223.50 (-)
(8.7)
BSE Sensex 15,975.52 17,578.72 (-)
(9.1)

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K.Karthik Raja