IT Stocks Outlook: Steady next week; market to eye Infosys results

[Sukumar]

IT Stocks Outlook: Steady next week; market to eye Infosys results
Friday, Apr 4

MUMBAI - Information technology shares are seen moving around the
current levels ahead of Infosys Technologies Jan-Mar earnings and
2008-09 earnings guidance due Apr 15.

Institute of Chartered Accountants of India set a new norm this
week,effectively mandating companies to declare marked-to-market gains
or losses from financial instruments such as derivatives.

Since the rupee has depreciated during Jan-Mar, a number of
companies may book a notional loss even on their vanilla foreign
exchange options.

Clarity is likely to emerge on the quantum of these losses once
Infosys declares its result.

HCL Technologies has already indicated that its foreign exchange
losses may be to the tune of $6 mln (24 mln rupees).

Tata Consultancy Services may be the only one spared from such
losses because the company follows hedge accounting, which means it
has already factored the amount in its balance sheet, and merely needs
to bring it in profit and loss accounts this quarter.

IT shares are trading at low valuations, with large-caps at 14-16
times2008-09 earnings.

Yet there could be more bad news for the sector if Infosys guides
for lower than 90 rupees of earnings per share in 2008-09 (Apr-Mar).

The current share price already factors in an EPS of 90-93 rupees
for Infosys.

From a technical standpoint, the IT sector is very attractive, and
Infosys, TCS, and Tech Mahindra would be the top picks.

The IT sector will outpace the broad market for the next two
years.

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

Company Apr 4 Mar 28 Change
(in %)
HCL Technologies 244.90 271.35 (-)
(9.7)
Infosys Technologies 1,485.45 1,521.20 (-)
(2.4)
Satyam Computer Services 424.55 408.65
3.9
Tata Consultancy Services 872.90 871.05
0.2
Wipro 414.90
453.50 (-)(8.5)

INDICES
CNX IT Index 3,801.60 3,904.70 (-)
(2.6)
NSE Nifty 4,647.00 4,942.00 (-)
(6.0)
BSE Sensex 15,343.12 16,371.29 (-)
(6.3)

N.Sukumar
Research Analyst
www.kences1.blogspot.com