Stocks of information technology companies are likely to consolidate at current levels over the next five trading sessions. Stocks of most technology companies ended up this week on upbeat investor sentiment in the global markets. On last Thursday, the US Federal Reserve announced a third round of quantitative easing, wherein the US central bank will begin to purchase agency-based securities at a pace of $40 bln a month. Prospects of global recovery were also revived after the US Fed raised its US gross domestic product growth estimate for 2013 to 2.5-3.0% from 2.2-2.8% earlier, and for 2014 to 3.0-3.8% from 3.0-3.5% earlier. The stocks of IT companies have been on a downward spiral for a while now and the upward momentum that is visible now is an expected bounce back. Credit Suisse's continues to prefer two large caps HCL Technologies and Tata Consultancy Services in the sector. We think TCS is demonstrating the best execution among the offshore IT services companies and HCL Technologies' execution seems steady.
Earlier this week, Infosys Ltd had announced acquisition of Swiss consulting company, Lodestone Holding AG for 330 mln Swiss francs (19.33 bln rupees). The acquisition is in line with Infosys' strategy of earning more revenue from high-end services even as the actual financial impact is small - we tweak our FY14E (Apr-Mar expected) revenue and EPS (earnings per share) estimates upwards by 3.4% and 0.9%, respectively. The trend in technology stocks is positive. The CNX IT Index is expected to trade at 6540 levels next week and if it falls below that level, then the stocks may see some downward corrections.
