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Stocks of major information technology companies are expected stay in a narrow range next week, with the bias in Infosys stocks seen negative but that in Wipro stocks likely to be positive. This week, stocks of mid-cap companies such as HCL Technologies, Satyam Computer Services, and Tech Mahindra declined due to weakness in the market. However, stocks of large-cap companies such as Infosys, Wipro, and Tata Consultancy Services held their ground. Concerns of an impending 'fiscal cliff' in the US have been weighing on domestic indices. Yesterday, equities globally were weak because US House Speaker John Boehner cancelled a vote on a proposed budget deal between the Republicans and the Democrats. The political deadlock in the US is worrisome for domestic technology companies, which are already facing pressures due to volatility in the rupee against the US dollar, global uncertainties, and delays in clients' budget decisions.
The trend in the National Stock Exchange's CNX-IT index is negative next week. A few weeks ago, the index had gone below its crucial support level of 5950 points but recovered to this level subsequently. However, do not expect this recovery to last. Infosys stocks are likely to fall next week despite the Bengaluru-based company offering flexible pricing to get more business. The technology major has become more flexible on pricing and more responsive in negotiations with clients on various issues including contract structuring. However, lower pricing is bound to have margin implications as reflected in Infosys's margin performance in the last two quarters. Infosys's earnings before interest and taxes margin has declined by 350 basis points to 26.3% in Jul-Sep from 29.8% in Jan-Mar. Investors might have to revise downward their margin expectations from Infosys.
Infosys's management has also indicated that the company might miss its organic growth guidance of 5% for this financial year due to delays in decision-making and ramp-downs in certain projects. Wipro stocks could rise next week as the company is focusing aggressively on being a pure-play information technology company. The stocks are trading at a higher top and higher bottom cycle. Stocks of HCL Technologies, which have seen good gains in the past one year due to the company's strong earnings, could correct downward. Tata Consultancy Services stocks are seen moving in a narrow range next week.
