IT Stocks Outlook: Range-bound next week with negative bias

[B. Karthick]

IT Stocks Outlook: Range-bound next week with negative bias
Saturday, Sep 6

Information technology shares are likely to move sideways next week,
but
bias is negative after a weak U.S. economic data raised concerns of
earnings
visibility of these companies.
Indian IT companies derive a major part of their export revenue from
U.S.
Shares are likely to remain range-bound next week. IT stocks were
battered
after data showed a rise in jobless claims in U.S. This affected the
sentiment.
Further weakness in Indian rupee against dollar can lift sentiment
in the
sector, but gains are seen capped as investors might book profits.
Market participants would also await weekly jobless claims data from
U.S.
Labor Department due Thursday.
If next week data too comes out weak, the shares can plunge further
as
the health of U.S. economy is the main driver for these shares.
The sector's reaction to rupee fluctuation would remain muted till
the
business outlook clears.
Demand environment is continuously deteriorating. Also companies'
hiring
plans are not proceeding as per schedule and most of these companies
are yet
to announce any significant business deals. All these raise concerns
over the
long term profitability of these companies.
There are talks of Citigroup, UBS cutting client budgets this year
and
soon other big companies might also follow. If that happens there are
no
prospects in putting money in IT stocks for the next one year.
There might be some select buying in mid-cap shares especially
stocks
like Rolta India, if the outcome of the Nuclear Suppliers Group meet
is
positive for India.
The stock is seen as a major beneficiary if the nuclear deal goes
through.

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

Company Sep 5 Aug 29 Change (in
%)
HCL Technologies 244.40 233.15 4.8
Infosys Technologies 1,712.30 1,749.10 (-)2.1
Satyam Computer Services 416.35 419.70 (-)0.7
Tata Consultancy Services 838.40 812.20 3.2
Wipro 424.85 432.40 (-)1.8

INDICES
CNX IT Index 3927.40 3926.80 0.0
NSE Nifty 4352.30 4360.00 (-)0.2
BSE Sensex 14483.83 14564.53 (-)0.6
End

B.Karthick
Research Analyst.