IT Stocks Outlook for the week (16-20.07.2012)
Stocks of major information technology companies may be
confined to a narrow band next week but Apr-Jun earnings of some companies could
cause sharp movement in their stocks Among the gainers will be stocks of Tata
Consultancy Services, which reported better-than-expected quarterly earnings
Thursday and dethroned Infosys as the sector bellwether. TCS management's
bullish outlook on performance in the coming quarters will keep investors
interested in the stock.
We continue to believe that TCS is the best company to own in the India IT services space in the near term to protect downside in a difficult and uncertain Indian market. Infosys's dismal quarterly numbers and pessimistic revenue growth guidance for 2012-13 (Apr-Mar) will ensure the stock remains weak in the coming sessions. Infosys shares fell 8.8% this week.
The company Thursday revised downward its revenue growth guidance for this financial year citing global macroeconomic headwinds, foreign exchange volatility, and pricing decline in Apr-Jun as reasons. Now, Infosys has projected a lukewarm revenue growth of 5% for this financial year, way below the 11-14% estimated by NASSCOM for the Indian information technology industry.
Infosys 1QFY13 (Apr-Jun) performance was disappointing on all counts--revenue, margin and net profit. Revised FY13 guidance is far from encouraging. The fact that it has discontinued quarterly guidance is another indicator that the business environment is changing for the worse. We believe any arguments stating low expectations for buying the stock are flawed, particularly when the company is unable to meet even watered-down expectations.
