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Stocks of major information technology companies are likely to be rangebound next week, with shares of Tata Consultancy Services having a bullish outlook. Compared with last week's close, shares of all the sector companies rose significantly. We see this as a mere pullback following the recent weakness.
All the major stocks are expected to remain range bound. Following the announcement of the Jul-Sep earnings by the top three IT companies--Infosys, Tata Consultancy, HCL Technologies it was the turn of Wipro Technologies to surprise the market, with a better-than-expected bottomline number.
However, the cheer was short-lived on lingering concern over the information technology major's stagnating revenues. Reacting to the earnings, Wipro shares opened up 2.4% on the National Stock Exchange and rose to an intraday high of 372.95 rupees. They pared some gains to end up 0.9% at 364.60 rupees.
While we do not see any concrete signs of a pick-up yet and recovery may be a few quarters away, there are a few factors that can cause such a pick-up Wipro's client mining has improved, sales spend has been going up, employee attrition is going down and there is an anecdotal chatter of improving deal pipelines.
We feel that while it will be difficult for the Bengaluru-based company to sustain very high levels of margins due to the changing nature of deals, it may be in a better position to sustain margins if it can tackle some of "its likely inefficiencies".
The company has started to see traction in the market as the benefits of organisational realignment and investment in sales have started to flow through to improved deal wins. Admittedly, 2Q (Jul-Sep) growth may remain at the lower end of the peer growth range, but we expect much stronger deal win announcements in the coming quarters, which should lead to a marked improvement in the Street's confidence. Wipro shares are seen trading at around the current level over the week.
