IT Stocks Outlook: Range-bound, marginally negative next week

[B. Karthick]

IT Stocks Outlook: Range-bound, marginally negative next week
Saturday, Aug 9

Information technology shares are likely to remain range-bound
with a marginally negative bias on profit booking in first part of
next week.
Earlier this week, technology shares rallied with HCL Technologies
in the lead, as market was impressed with the company's robust Apr-Jun
earnings and positive commentary for 2008-09 (Jul-Jun).
Profit booking happened yesterday as CNX IT Index ended the day
down 1.5%.
Fluctuation in rupee's exchange rate against dollar is seen
neutral for the sector as long as it stays within 41-43 rupees per 1-
dollar range.
Most companies have foreign exchange hedges within these rates,
and with the new accounting norms, even if companies get higher
revenue due to a fall in the rupee, it gets mostly negated in forex
losses.
The other reason for the shares to remain range-bound is that many
of the technology sector bulls are now on the sidelines waiting for
companies to detail Jul-Sep earnings.
At the start of this financial year, most companies had projected
back-ended growth but while detailing first quarter results of 2008-09
(Apr-Mar) they had indicated that spending decisions of clients were
getting delayed, and business environment continued to be challenging.
Stray rumours about recovery or failure in the U.S. and financial
services markets will lead to at best a 2% fluctuation in IT stocks.
Lately, there have been talks that Accenture has been undercutting
technology companies on pricing for large contracts.
If that is true, it means there is a real crunch in demand.
Indicatively, even the Infosys management pointed towards focussing on
business volume rather than margins. This is a worrisome trend.
There may be some buying in select mid-cap shares, although as a
whole the sector is likely to languish amid thin volumes.
Rolta India may be a key gainer as the outcome on the Indo-US
nuclear civilian deal comes out.
The company has a joint venture with Stone & Webster that has
special solutions for nuclear power industry.

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

Company Aug 8 Aug 1
Change (in %)
HCL Technologies 225.25 207.25
8.7
Infosys Technologies 1,679.60 1,639.45 2.4
Satyam Computer Services 409.25 391.05 4.7
Tata Consultancy Services 845.10 840.65 0.5
Wipro 437.65
433.85 0.9

INDICES
CNX IT Index 3,916.40 3,581.85
9.3
Nifty 4529.50
4413.55 2.63
Sensex 15167.82 14656.69
3.49
End

B.Karthick
Research Analyst.