IT Stocks Outlook: Range-bound next week after recent rise

[B. Karthick]

IT Stocks Outlook: Range-bound next week after recent rise

Information technology shares are seen range-bound next week,
even though sentiment for the sector is better now than it has been
from the start of 2008, as the stocks have reached mostly near-term
targets.
Shares are likely to perform in line with the market now because
there is not much upside from these levels.
Comments from Infosys Technologies this week suggest there is some
relief in business environment concerns.
Infosys management said business from the banking, financial
services, and insurance sector is likely to grow in line with IT
industry growth.
This indicates the BFSI sector, the largest spender on IT, will
continue its spends despite the global economic situation.
It provides support to the hypothesis of back-ended growth this
financial year, so some of the scepticism that IT companies may not be
able to meet their guidance is waning.
A media report that Infosys was revising its full-year guidance to
the
upper end of the earlier indicated 19-21% growth also provided support
to the bellwether's shares in the last two sessions.
We expect Infosys to erase some of those gains in the near future.
A softer rupee against dollar is also supporting IT shares.
Weakness in the Indian unit has sustained so far, and is likely to
hold till the end of the quarter, increasing operating margin on
export revenue for IT companies.
Since Apr 1, rupee has depreciated 6.5% at its Friday's closing
rate of 42.66 rupees per $1.
Companies estimate 1% change in rupee affects operating margin
between 30-50 basis points.
Impact on net profit would not be proportional this quarter as
most IT
companies have foreign exchange hedges at higher rupee rates, but the
fall in the Indian currency affects full-year outlook.
The only factor that could trigger the IT sector to outperform
market is defensive buying.
In case there is more sentimental weakness in sectors such as
capital good and fast moving consumer goods, given inflation and other
economic data, investors may head to IT, where revenue visibility is
higher.
.
.
Week-on-week closing prices of key software shares, in rupees, on
National Stock Exchange:
.
Company Jun 6 May 30 Change
(in %)
HCL Technologies 313.25 314.60 (-)
(0.4)
Infosys Technologies 1,993.55 1,962.80 1.6
Satyam Computer Services 510.00 523.50 (-)
(2.6)
Tata Consultancy Services 966.20 1,039.15 (-)
(7.0)
Wipro 505.60 509.25 (-)
(0.7)
.
INDICES
CNX IT Index 4571.30 4688.35 (-)
(2.5)
NSE Nifty 4627.80 4870.10 (-)
(5.0)
BSE Sensex 15572.18 16415.57 (-)
(5.1)

End

B.Karthick,
Research Analyst