IT Stocks Outlook: Dn next wk; sentiment weak post Cognizant result

[N.Sukumar]

MUMBAI - Information technology shares are seen falling next week
after weak earnings outlook from Cognizant is seen heightening impact
of any negative news in the sector, analysts said.

Yet, investor attention will be on the sector, as it will gain
prominence
in a weak market, analysts said.

Industrial production numbers are the only trigger that could divert
attention from the IT sector, as strong production data will revive
investor interest in the capital goods sector, they said.

Satyam Computer Services is seen the worst hit, as there is talk the
company will be hit by client ramp downs in Apr-Jun.

CLSA downgraded the company to 'outperform' from 'buy' in a note
published earlier this week.

Analysts expect Satyam to be hit by a sharp drop in contracts from
Bear Stearns that has been acquired by JP Morgan. The company is also
facing trouble with Citigroup deals, they said.

Citigroup is one of Satyam's top 10 clients, an analyst said.

Analysts said mid-cap shares in the IT sector will be more hit than
large-caps because valuation gap has narrowed in the fall after
Cognizant reported weaker than expected earnings outlook for Apr-Jun
Wednesday.

Tech Mahindra may be the worst hit as its valuation is nearly at par
with
HCL Technologies at 13 times 2008-09 expected earnings, analysts said.

Tech Mahindra should trade at a slight discount to HCL Technologies,
they said.

Yet, a softening rupee, against the dollar, is likely to lend support
to
technology shares.

Since Apr 1, rupee has already depreciated nearly 4%, and is seen
falling further as oil importers are buying dollars amid soaring crude
oil prices.

Rupee is seen trading at 41.40-41.90 rupees per dollar next week,
foreign exchange dealers said.

The currency may even hit 42 rupees per 1 dollar, they said.

Today, the exchange rate ended at 41.60 rupees per 1 dollar.

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

Company May 9 May 2 Change
(in %)
HCL Technologies 287.75 297.05 (-)(3.1)
Infosys Technologies 1,749.35 1,787.45 (-)(2.1)
Satyam Computer Services 474.60 494.20 (-)(4.0)
Tata Consultancy Services 917.00 943.75 (-)(2.8)
Wipro 500.95 502.25 (-)(0.3)

INDICES
CNX IT Index 4,334.45 4,458.50 (-)(2.8)
NSE Nifty 4,982.60 5,228.20 (-)(4.7)
BSE Sensex 16,737.07 17,600.12 (-)(4.9)


N.Sukumar
Research Analyst