IT Stocks
Outlook for the week (09 - 13.07.2012)
Stocks of information technology
companies are likely to be subdued for most part of next week as investors will
turn cautious before announcement of the Apr-Jun earnings of sector leaders
Tata Consultancy Services and Infosys, due on Thursday. However, if the
broad market trades positive, any downside in these stocks would be
limited. We forecast sluggish revenue growth (of (-)1% to 2% sequentially
in dollar terms) for Tier-I IT companies as the macro outlook remains tough,
and cross currencies impact the reported USD revenues for Q1 (Apr-Jun)
negatively. TCS' net profit is seen rising 8% sequentially to 31.62 bln
rupees and net sales are seen growing 11% to 147.35 bln rupees. We believe
investors will have a greater focus on Infosys and TCS' outlook on demand, and
many are anticipating a cut in Infosys' projection. IT had been a great
place to hide given the rupee depreciation, but serious doubts about the demand
scenario, especially from the BFSI (banking financial services and insurance)
segment, have emerged. We believe that Infosys will announce another cut to its
demand forecast to around 6% from current 8-10% and possibly trigger a second
round of de-rating. Investors will also track the movement of the rupee against
the dollar as software exporters get nearly 65% of their revenue from the US . In the
week to date, the Indian currency has appreciated about 0.25% against the
dollar.
TECHNICAL VIEW
Technically, the bias for
Infosys, HCL Technologies, and Wipro appears to be weak, while that for TCS,
Satyam Computer Services, and Tech Mahindra is rangebound. The CNX IT
index also looks weak on the charts, and is likely to trade in a range of
5960-6170 next week. If the index slips below the lower end of the range, it
could test 5800 in one to two sessions.
� ] u i � @ and
prices, hence margins, to trend upward year-on-year., pred� m e � @ rojection of only moderate improvement in RIL's refining margin and a bottoming out of petrochemical margins.
er} � e � @ headroom for upside potential following the recent rally in the stock.
