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Stocks of major information technology companies are expected to trade positive in the week ahead amid hopes the US government will come up with some solution to resolve the impending fiscal cliff. However, the bias in HCL Technologies stocks, which have seen good gains in the past one year due to the company's strong earnings, is seen negative mostly on technical correction. This week, stocks of IT companies, except HCL Technologies, rose over last week's close eyeing impact of talks between US lawmakers to reduce effects of automatic tax hikes and spending cuts that threaten to push the country into recession in the first half of 2013. The fiscal cliff 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. Oct-Dec results of information technology companies to be seasonally weak with 2.7% on quarter revenue growth in dollar terms, driven by impact from seasonal shutdowns in hi-tech and manufacturing verticals, the one-off disruption from Hurricane Sandy, and some furloughs in the BFSI vertical.
We forecast average 50 bp (basis point) of EBIT (earnings before interest and tax) margin compression qoq (quarter-on-quarter) driven by wage hike, fresher intake and lower utilisations; hence all stocks would witness decline in EPS (earnings per share) qoq, in our view. Infosys, which will kick start the Oct-Dec earning season for the IT companies on Jan 11, is expected to cut its organic revenue growth guidance of 5% for this financial year due to delays in decision-making and ramp-downs in certain projects. We expect INFY (Infosys) to cut their organic FY13 (Apr-Mar) US$ revenue growth guidance to 4%+ (from 5%+) as the impact of accentuated seasonality may result in slower ramp up of deals, especially in BFSI (Banking, financial services and insurance). However, for the coming week stocks of Infosys are likely to rise as the stock is correcting itself following a sharp fall few weeks back.
Wipro stocks are seen rising next week following the company's decision to focus solely on being a pure-play information technology firm. The trend in Tata Consultancy Services stocks, which saw upward correction following its steep fall few weeks back, will remain positive in the coming week. Further, the company's steady performances during earnings for the last few quarters will help the stock move up.
