IT Stocks Outlook: Dn next wk on fear major cos may miss guidance

[B. Karthick]

IT Stocks Outlook: Dn next wk on fear major cos may miss guidance
Saturday, Sep 13

Likely weak Jul-Sep earnings and that some major companies may
fall short of their dollar-revenue guidance are some of the factors
that are likely to keep information technology shares subdued next
week.
Turmoil in the U.S. financial sector, which accounts for a
substantial portion of Indian IT companies' revenue, along with
investment bank Lehman Brothers reporting dismal results for the third
quarter, will add to the worries.
IT shares were battered yesterday. Infosys Technologies may miss
dollar-based revenue guidance for Jul-Sep and also for 2008-09 (Apr-
Mar).
Rise of the U.S. dollar against other currencies has created
"cross-currency headwinds" for Infosys.
There was 'panic selling by foreign institutions' yesterday and IT
shares are likely to remain under pressure next week too because
concerns raised over revenue growth is a strong reason to exit from
these stocks.
However, we believe that these companies would meet their dollar-
based guidance because currency-related fluctuations have already been
factored in their outlook.
Although there is no improvement in the demand environment, there
was not sporadic cuts in client budgets too. Also, the dollar's
appreciation against other global currencies would be offset by
depreciation in the rupee.
Tech Mahindra could be hit adversely by appreciation of the dollar
against other currencies, as the company derives about 65% of its
revenue from the U.K.
IT shares would also take cues from quarterly results of global
financial majors Goldman Sachs and Morgan Stanley.
Any negative results from these companies would dampen the
sentiment further.
If Goldman Sachs and Morgan Stanley's results miss estimates, then
technology shares would plunge as it hurts their business prospects.
Some short covering may emerge at lower levels, but gains are
unlikely to sustain. They ruled out fresh buying with the business
outlook weak.

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

Company Sep 12 Sep 5
Change (in %)
HCL Technologies 228.85 244.40 (-)6.4
Infosys Technologies 1,644.00 1,712.30 (-)4.0
Satyam Computer Services 407.30 416.35 (-)2.2
Tata Consultancy Services 810.55 838.40 (-)3.3
Wipro 419.65 424.85
(-)1.2

INDICES
CNX IT Index 3806.45 3927.40 (-)3.1
NSE Nifty 4228.45 4352.30
(-)2.8
BSE Sensex 14000.81 14483.83 (-)3.3


B.Karthick
Research Analyst.