IT Stocks Outlook for the week: 07 - 11.01.2013

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Stocks of major information technology companies are likely to be under pressure next week due to expectations of subdued earnings for the seasonally weak Oct-Dec quarter. Investors are likely to take fresh views about IT companies after sector heavyweight Infosys announces its Oct-Dec earnings on Friday. Volume growth in general is likely to be lower than that in the September quarter owing to seasonal reasons. The INR (Indian rupee) appreciated by about 2% QoQ (quarter-on- quarter) versus the USD (US dollar) which is slightly negative for margins though the exact impact for individual companies will be determined by company-specific factors.

Oct-Dec is typically the weakest period for Indian IT companies, as there are lesser working days during the quarter due to festive holidays in key markets, the US and UK. Tata Consultancy Services, India's largest IT exporter, has already said that the company's sequential business volume growth for Oct-Dec is likely to be lower than a quarter ago. Volumes to be impacted by furloughs closure, lower billable days, and Sandy Storm (one-time). Benefits from favourable cross currency moves will be limited. Axis Capital expects top four IT exporters to report 1.8% to 2.5% sequential growth, and TCS and HCL Technologies to lead sector growth. Any forward looking statements by companies' managements will be the basis for the near-term outlook for the sector.

TCS will detail its earnings on Jan 14, while NIIT Technologies will share the same on Jan 15. Mid-sized firms, CMC and MindTree will announce their Oct-Dec earnings on Friday and Jan 18, respectively. A key factor to watch out for would be commentary on customers' 2013 IT budgets and on 2013 growth prospects relative to 2012.

IT Stocks Outlook for the week: 31.12.2012 - 04.01.2013

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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.

IT Stocks Outlook for the week (17-21.12.2012)

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Stocks of major information technology companies are likely to mostly remain bearish next week with stocks of companies Tata Consultancy Services, Infosys, and Wipro Technologies seen weak. With companies scheduled to report their Oct-Dec results next month, the Street is waiting to see if they meet their revenue guidance. Indian IT companies are reeling under pressure from the weak rupee, volatile global environment, and looming US 'fiscal cliff' which is likely to effect client budgets.

Satyam Computer Services said it has paid $68 mln to Aberdeen Global Income Fund, and 22 other funds managed by Aberdeen Asset Management Plc to settle claims against "certain allegations of fraudulent misrepresentations" by the company's former management in London. The move is seen as a positive for the stock as it clears the way for the merger of Satyam Computer Services with Tech Mahindra. HCL Technologies may trade positive over the next week as the company has consistently been reporting strong earnings and is expected to do so going forward.

IT Stocks Outlook for the week (03-07.11.2012)

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Stocks of information technology companies, particularly frontline ones, could face bouts of profit booking next week after sharp gains this week. Lack of any positive triggers may keep any upside in these shares capped. Also, data on rollover of positions to the December derivatives series from the November series does not paint a bright picture for stocks of the sector. At 72%, rollovers in the information technology sector were the lowest among sectors. Rollovers in Tata Consultancy Services and Wipro were rather low at 61% and 63%, respectively.
   
From a long-term perspective, market participants hold a positive view on Infosys shares as the valuation of the stock is low compared with peers such as Tata Consultancy. We believe convergence of growth with peer levels over the next few quarters will narrow Infosys's valuation discount to previous business cycle mean/that of peers.

IT Stocks Outlook for the week (26-30.11.2012)

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Stocks of major information technology companies are seen in a narrow range next week, in the absence of any sector-specific domestic or global triggers. The European leaders could not arrive at a consensus over giving the next tranche of aid to Greece but expectations are that, the same will be provided next week. With the results season behind us, focus over the next three to four weeks will shift to the reforms measures in India and the fiscal cliff issue in US. If some of the proposed bills are taken up and passed, we can see the sentiment turn bullish and markets trending higher over the next few weeks. Fiscal cliff refers to a set of tax hikes and spending cuts that will automatically come into effect in January if the US Congress is unable to reach a compromise on debt negotiations. Infosys' commentary on demand environment continues to be a tad contrasting to its industry peers. The company continues to see the demand environment as challenging across most verticals and geographies, even as there are pockets of optimism.

The company is seeing pick-up in request for proposal activities, though the conversion rate remains slow. The domestic market is witnessing a time-wise correction for the last nine weeks and this could be the reason behind the fluctuation in stock prices of all major companies. While the outlook on Infosys is bullish, that on Tata Consultancy Services remains neutral.

IT Stocks Outlook for the week (22-26.10.2012)

Performance of major information technology companies' stocks is likely to remain stock-specific next week, with investors closely watching their Jul-Sep earnings. The CNX-IT index is seen in narrow range, and HCL may outperform its peers. The immediate support of CNX-IT is 5980, below which we will see weakness in the sector's overall performance.

Stocks of Tata Consultancy Services, which detailed its Jul-Sep results post market hours yesterday, are seen rangebound next week. The company beat market expectations, posting better-than-expected dollar-revenue growth. For Jul-Sep, the company's revenue stood at $2.85 bln, up 4.6% on quarter, while it rupee terms, it reported revenue of 156.21 bln rupees. Net profit for the quarter was 35.12 bln rupees. In the current operating context, it is important for us to remain efficient, keep a healthy grip on expenses, conserve cash and at the same time invest for the future," TCS Chief Financial Officer S. Mahalingam was quoted as saying in a release. He added the company will continue to focus on maintaining its strategy of profitable growth to maintain margins and to ensure that it can invest on an ongoing basis as technology adoption cycle gets shorter.

HCL Technologies, which reported its earnings Wednesday, also posted a better than expected 78.1% on year rise in consolidated net profit at 8.85 bln rupees. The company's revenues rose 31% to 60.91 bln rupees. Overall, we believe, the investment thesis on Infosys is now largely contingent on macro-recovery. Status quo, the upside to the current estimates is limited...and the stock may remain range-bound, at best. With the three major IT services providers having reported their earnings, all eyes are now on Wipro, which will detail its earnings on Nov 2.

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IT Stocks Outlook for the week (15-19.10.2012).

Movement in stocks of information technology majors is likely to remain stock-specific next week as investors will track companies' Jul-Sep earnings to take a further view on them. Stocks of Infosys, which posted a disappointing Jul-Sep performance yesterday, are seen under pressure next week, but Tata Consultancy Services' scrip is likely to remain rangebound ahead of the company's earnings on Friday. Yesterday, stocks of Infosys ended down over 5% after the company disappointed investors by posting lower-than-expected dollar-revenue growth, and said its margins for 2012-13 (Apr-Mar) may fall by 200 basis points year-on-year. Investors will also watch out for earnings of mid-size IT companies such as CMC on Monday, Mindtree and Zensar on Tuesday, and Mastek on Friday.

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IT Stocks Outlook: 24-28.09.2012

Stocks of most information technology companies are likely to be rangebound over the next five sessions, that a few of these stocks may witness some correction. Stocks of most technology companies ended down this week tracking a strong rupee against the US dollar. While the trend is positive for Infosys, Tata Consultancy Services, and HCL Technologies are expected to see some correction if they drop below their support levels. BofA-ML said Infosys seemed to be course-correcting its response in the commoditised application and information technology infrastructure maintenance business, where it was losing share, by exploring alternate delivery models.

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IT Stocks Outlook for the week: 17.09.2012 - 21.09.2012

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.

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IT Stocks Outlook: 10-14.09.2012

Stocks of domestic information technology companies are likely to gain over the next five sessions on improved investor sentiment after the European Central Bank announced a much-awaited bond-buying programme and noting a rise in the US employment numbers. Shares of most technology companies ended up this week as well tracking the optimism in global markets.

On Thursday, the ECB said it would purchase bonds of debt-ridden Eurozone countries in unlimited quantities from the open market to lower their borrowing costs. However, the ECB did not detail a timeframe for such a move. Also, data releases showed a fall in US jobless claims for the week ended Saturday, and a rise in employment during August.

Stocks have done well over the past few weeks after falling on Infosys' results. Tata Consultancy Services and HCL Technologies have restored some confidence within the sector. Also, dismissal of the harassment case against Infosys in US boosted sentiments.

Moreover, expectations of liquidity conditions easing in developed markets have supported stocks.

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IT Stocks Outlook for the week (03.09.2012-07.09.2012)

Stocks of domestic information technology companies are likely to move in a narrow range next week due to weak global markets and stagnancy in the dollar-rupee movement. Stocks of most technology companies ended down this week as the Indian IT Industry was following global market cues. The broad trend is in the negative side with no major activity being noticed in the rupee-dollar levels,

However, bullish on Tata Consultancy Services, and expect some profit booking in the stock. Stocks of HCL Technologies and Satyam Computer Services are also expected to perform better compared with Infosys and Wipro Technologies Following its merger with Mahindra Satyam (likely to be over in next few months), Tech Mahindra will have a huge base of 500 plus clients. This, coupled with Tech Mahindra's client mining capability, will impart a high impetus to the company over and above the significant operational leverage in terms of employee fungibility, which would help enhance utilisation and margin improvement.
(www.rupeedesk.in)

IT Stocks Outlook for the week (27-31.08.2012)

Stocks of domestic information technology companies are seen moving in a narrow range around current levels next week backed by investor confidence for the sector despite weak global markets. Most technology companies stocks ended up this week amid a weak broad market because of positive sectoral view. Overall, the outlook on the sector is positive but we don't see any incremental deviations in the short-term. There are no changes in growth expectations. We are expects the impact to be industry-wide and not restricted to Infosys as the pressure to hire staff overseas will mount.

We believe further upside should be capped as there are limited signs of business improvements. Our technical of Infosys will face resistance at 2,500-2,550 rupees and may find support at 2,350 rupees. Stocks of Wipro, which are expected to see some profit booking, will find support in the range of 350-353 rupees. We are expected to face resistance in the range of 375-378 rupees. TCS shares may maintain their up-trend helped by the company's consistent performance. No major selling is expected on this stock.


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IT Stocks Outlook for the week (21-24.08.2012)

Stocks of domestic information technology majors are expected to move in a narrow range next week as the rupee is steady against the US dollar. Today, stocks of most companies in the sector ended higher from last Friday because of positive cues from Asian markets and stability in global markets.
  
Most information technology majors have already announced their Apr-Jun earnings. Overall, the outlook on the sector is positive but incremental gains in their stocks are not seen too high.
   
Although demand in the sector has slowed, companies focusing on gaining market share are expected to put up a good performance going forward, Most of bullish on Tata Consultancy Services and HCL Technologies stocks due to greater momentum in the companies' business, their high visibility in the international markets, and improvement in revenue and earnings growth in Apr-Jun.

Stocks of HCL Technologies, which has a 'low margin' strategy, and Tata Consultancy, which has tightly run operations, are the preferred picks in the information technology basket. Due to Infosys's low cost efficiency, the company's performance may suffer going forward.

Infosys's continued underperformance resulted in its PER (price-to-equity ratio) premium shrinking relative to peers such as HCL Technologies; and though the company is quoting at historic low valuations (excluding a brief period post the credit crisis in CY08), we do not expect the stock to get re-rated in the short term.

Major technology companies' volume growth improved sequentially in Apr-Jun. "Though delays in client decisions continued to be a concern, TCS and HCL (Technologies) reported a volume growth of 5.3% and 4.6% , respectively.

Infosys's volumes grew 2.7% in Apr-Jun after declining 1.5% in Jan-Mar. "However, Wipro continued to under-perform its peers and reported a volume growth of 0.8% in 1QFY13--the third successive quarter of below peer volume growth. (The) Company's volume growth has also been the lowest among peers in nine of the past 14 quarters.

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IT Stocks Outlook for the week (13-17.08.2012)

Stocks of major information technology companies are seen rangebound next week due to lack of sector-specific triggers as earnings of most companies have already been announced. All results are out as such, there is no event next week, so we see a rangebound movement in IT stocks in coming sessions. Our expect are of the view that stocks in the sector will mainly be market driven and also be governed by rupee movement to some extent.

Local indices too are seen in a narrow band next week, with quarterly earnings of companies likely to drive the trend. Investors will also eye inflation data for July, due Tuesday. The rupee is seen depreciating further in the coming sessions due to global economic worries and tracking the euro. The rupee today ended at 55.28 per dollar against Thursday's close of 55.27.

Indian software exporters remain vulnerable to the movement of rupee against the greenback as they get nearly 65% of their revenue from the US. HCL Technologies is expected to attract profit booking, while Infosys is seen moving in a range. Since Tech Mahindra Apr-Jun earnings were announced Thursday, the stock may consolidate over the next few sessions and then move higher. Tech Mahindra reported a 12% sequential rise in Apr-Jun consolidated net profit at 3.38 bln rupees aided by better operating performance.

(www.rupeedesk.in)

IT Stocks Outlook for the week (06 - 10.08.2012)

Stocks of major information technology companies are likely to move in a narrow range next week due to lack of any sector-specific triggers. There could be some stock-specific movement in reaction to companies' Apr-Jun earnings and other corporate developments. Stocks of Satyam Computer Services are likely to rise further next week. This week, the stock ended 5% higher as the company Thursday reported better-than-expected earnings for Apr-Jun. Foreign exchange gains, higher utilisation, and cost optimisation boosted the company's net profit in the quarter 56.4% from a year ago to 3.52 bln rupees. Revenue rose 31.1% to 18.80 bln rupees. The earnings of group company Tech Mahindra, which will be released Thursday. Satyam Computer's strong earnings pushed Tech Mahindra stocks up more than 6% this week. Tata Consultancy Services and Infosys stocks have been moving sideways-to-positive. Stocks of Wipro have a different chart pattern compared with those of Infosys and Tata Consultancy.

IT Stocks Outlook for the week (30.07.2012 - 03.08.2012)

               Stocks of major information technology firms are likely to see stock-specific movement next week, based on Apr-Jun earnings announced by these companies. HCL Technologies, which posted a robust year-on-year growth for Apr-Jun, rose nearly 8% this week and may continue the trend in the coming week as well. Strong on-year growth of 37.7% in revenues at 59.19 bln rupees coupled with tighter control on costs helped the Delhi-based IT major beat Street expectations of its June quarter earnings by a yawning gap. The company reported a 67.3% on-year jump in quarterly net profit to 8.54 bln rupees. Infosys and Wipro, which disappointed investors with poor earnings for Apr-Jun, are likely to continue seeing lack of investor interest next week. This week, stocks of Infosys and Wipro declined 3% and 8%, respectively.

               Tuesday, Wipro posted a lower-than-expected net profit for Apr-Jun, and shared a tepid guidance for Jul-Sep, on the back of delays in decision-making by clients, and order closures. The soaps-to-software major posted a 6.7% sequential growth in consolidated net profit for Apr-Jun at 15.80 bln rupees. Wipro's 2QFY13 (Jul-Sep) US dollar revenue guidance of 0.3-2.3% QoQ (quarter-on-quarter) growth was poor and, in absolute terms, is the third successive quarter that the IT major has given the exact same dollar revenue guidance, implying no growth momentum whatsoever. In our view, this guidance is likely to lead to the stock continuing to get a short shrift from investors.

(www.rupeedesk.in)

IT Stocks Outlook for the week (16-20.07.2012)

IT Stocks Outlook for the week (16-20.07.2012)

Stocks of major information technology companies may be confined to a narrow band next week but Apr-Jun earnings of some companies could cause sharp movement in their stocks Among the gainers will be stocks of Tata Consultancy Services, which reported better-than-expected quarterly earnings Thursday and dethroned Infosys as the sector bellwether. TCS management's bullish outlook on performance in the coming quarters will keep investors interested in the stock.

We continue to believe that TCS is the best company to own in the India IT services space in the near term to protect downside in a difficult and uncertain Indian market. Infosys's dismal quarterly numbers and pessimistic revenue growth guidance for 2012-13 (Apr-Mar) will ensure the stock remains weak in the coming sessions. Infosys shares fell 8.8% this week.

The company Thursday revised downward its revenue growth guidance for this financial year citing global macroeconomic headwinds, foreign exchange volatility, and pricing decline in Apr-Jun as reasons. Now, Infosys has projected a lukewarm revenue growth of 5% for this financial year, way below the 11-14% estimated by NASSCOM for the Indian information technology industry.

Infosys 1QFY13 (Apr-Jun) performance was disappointing on all counts--revenue, margin and net profit. Revised FY13 guidance is far from encouraging. The fact that it has discontinued quarterly guidance is another indicator that the business environment is changing for the worse. We believe any arguments stating low expectations for buying the stock are flawed, particularly when the company is unable to meet even watered-down expectations.

IT Stocks Outlook for the week (09 - 13.07.2012)

IT Stocks Outlook for the week (09 - 13.07.2012)

Stocks of information technology companies are likely to be subdued for most part of next week as investors will turn cautious before announcement of the Apr-Jun earnings of sector leaders Tata Consultancy Services and Infosys, due on Thursday. However, if the broad market trades positive, any downside in these stocks would be limited. We forecast sluggish revenue growth (of (-)1% to 2% sequentially in dollar terms) for Tier-I IT companies as the macro outlook remains tough, and cross currencies impact the reported USD revenues for Q1 (Apr-Jun) negatively. TCS' net profit is seen rising 8% sequentially to 31.62 bln rupees and net sales are seen growing 11% to 147.35 bln rupees. We believe investors will have a greater focus on Infosys and TCS' outlook on demand, and many are anticipating a cut in Infosys' projection. IT had been a great place to hide given the rupee depreciation, but serious doubts about the demand scenario, especially from the BFSI (banking financial services and insurance) segment, have emerged. We believe that Infosys will announce another cut to its demand forecast to around 6% from current 8-10% and possibly trigger a second round of de-rating. Investors will also track the movement of the rupee against the dollar as software exporters get nearly 65% of their revenue from the US. In the week to date, the Indian currency has appreciated about 0.25% against the dollar.

TECHNICAL VIEW

Technically, the bias for Infosys, HCL Technologies, and Wipro appears to be weak, while that for TCS, Satyam Computer Services, and Tech Mahindra is rangebound. The CNX IT index also looks weak on the charts, and is likely to trade in a range of 5960-6170 next week. If the index slips below the lower end of the range, it could test 5800 in one to two sessions. 

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