Stocks of major information technology companies are seen trading in a thin range next week as investors are awaiting Infosys' Jul-Sep earnings, due Friday, before taking further near-term positions. Even as Infosys' Jul-Sep performance is seen as a company-specific event, it will set the tone for the sector to some extent. We expect Infosys to retain its FY13F (2012-13, Apr-Mar) dollar-revenue growth guidance of 5% on an organic basis and cut EPS (earnings per share) guidance by around 2% to 163 rupees on rupee appreciation. If Infosys decides to give out wage hikes in 3Q (Oct-Dec) (there could be a further cut in guidance). We believe there is a high likelihood of a wage hike in 3Q as growth comes in line with guidance. We will watch out for Infosys management's commentary about the demand and pricing environment. Growth in IT companies' business volume has been declining gradually over the past few quarters due to slowdown in key markets such as US and UK.
Volumes for the top 4 companies are expected to rise by 2-4%. This will be relatively muted for a quarter (Jul-Sep), which is considered to be the best for the Indian IT companies. We expect Indian software exporters to have seen slower growth in discretionary spending by clients and delays in spending decisions during Jul-Sep. This week, stocks of most large IT companies declined as investors were worried over the steep appreciation of rupee against the dollar. The Indian currency has appreciated over 7% since the beginning of September.
