IT Stocks Outlook for the week - 09 to 13.12.2013

www.rupeedesk.in

Stocks of information technology companies are likely to trade in a narrow range next week with a neutral bias following consolidation after the surge seen after the companies reported their quarterly performances. Stocks of information technology companies had touched their highs soon after the positive Jul-Sep results and have been consolidating after that. We don't expect any major movement in the stocks at least in the short term. On Wednesday, Wipro said it will discontinue manufacturing desktops, laptops and servers and will focus on its information technology solutions services business. The company said the decision was taken after evaluating the market scenario and market needs. Wipro, will, however, fulfil current deals' warranty and maintenance obligations. 

Wipro's exit from the hardware business will enhance value creation for its shareholders; apart from helping the company completely focus on its IT services business. Further, after market hours on Thursday, MphasiS reported a 9.12% year-on-year fall in consolidated net profit for Aug-Oct, due to a steep decline in other income, a sharp rise in finance cost, and a lower operating margin. Consolidated net profit of the Hewlett Packard-promoted company was down at 1.90 bln rupees, despite a 22.04% year on year rise in consolidated income from operations at 15.94 bln rupees. MphasiS' Chief Executive Officer Ganesh Ayyar also said the company will concentrate on bagging mid-to-large-sized deals going forward and not target smaller orders. 

IT Stocks Outlook for the week (14 -18.01.2013)

www.rupeedesk.in

Stocks of major information technology companies are seen up next week, buoyed by the positive momentum set by Infosys, which saw a better-than-expected performance in Oct-Dec. Infosys, the country's second-largest software exporter, posted a consolidated net profit of 23.69 bln rupees for Oct-Dec, nearly unchanged from a quarter ago. Net sales for the quarter, including from the newly acquired Lodestone Holding AG, rose 5.7% on quarter to 104.24 bln rupees. Bengaluru-based company's consolidated net profit for Oct-Dec at 22.21 bln rupees, down 6%sequentially, while consolidated net sales were seen rising a mere 2% on quarter to 101.04 bln rupees. Additionally, the company raised its revenue guidance for the current financial year to March, fuelling hopes that the whole sector may be headed for better times ahead. We believe Infosys's results signal a turn in trajectory of the revenue growth. Although quarter results were driven by a return to a mean in pricing post significant disappointment earlier on in the year, we believe this could reflect some initial success in the company's new, more aggressive strategy.

Investors are now likely to keep a close eye for the Oct-Dec earnings of Tata Consultancy Services, which will be announced Monday evening. The city-based company is seen posting a 3% sequential decline in net profit for Oct-Dec at 34.10 bln rupees, mainly due to seasonal weakness, foreign exchange losses, and lower growth in business volumes. We sees the company's net sales growing a tepid 2% quarter-on-quarter in Oct-Dec to 159.42 bln rupees. Performance by mid-sized CMC, which announced its Oct-Dec earnings yesterday, was also impressive. The company posted a 24% sequential rise in consolidated net profit for Oct-Dec at 610.62 bln rupees, and a 7.5% increase in net sales at 4.93 bln rupees. Street will also watch out for Oct-Dec earnings of HCL Technologies and Wipro, which will be announced on Thursday and Friday, respectively. Oct-Dec earnings of NIIT Technologies, MindTree, and NIIT will also be eyed next week.

IT Stocks Outlook for the week: 24 - 28.12.2012

www.rupeedesk.in

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.

IT Stocks Outlook for the week (19-23.11.2012)

www.rupeedesk.in

Stocks of major information technology companies are likely to be rangebound next week as sentiment is seen weak on concerns that impending budget cuts in the US could hit public expenditure and lead to cuts in many government projects. Many Indian IT companies are either recipients of these orders, or partner US companies that execute government projects. US President Barack Obama will meet Congressional leaders yesterday to discuss possible steps to lower the country's debt and avoid a 'fiscal cliff'. Fiscal cliff refers to 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. Back home, on Monday, the National Association of Software and Services Companies revised downward the sector's growth guidance for Apr-Mar saying that non-performance of global centres has weighed on growth projections.

Nasscom has cut Indian IT industry exports guidance to 9-12% growth, down from 11-14% given out in Feb 2012. The 3% range of the guidance has not changed even after taking stock of 1HFY13 (Apr-Sep) performance. The industry body expects software and business process outsourcing exports to grow to $75 bln-$77 bln in the financial year ending March as against $69 bln in 2011-12 (Apr-Mar). At the upper end, even the revised guidance looked aggressive. Retaining a cautious stance, Oct-Mar is expected to be weak for information technology companies. While the trend for companies like HCL Technologies and Tata Consultancy Services is bearish, Infosys is likely to see some positive momentum. For the CNX-IT Index, immediate support is seen at 5980, below which the trend is negative.

IT Stocks Outlook for the week (12-16.11.2012)

www.rupeedesk.in

Stocks of major information technology companies are likely to trade in a narrow range next week in the absence of any sector-specific triggers. Investors will keep an eye out for announcements on deal wins.
   
This week saw Infosys bag a $50-mln contract from the Ministry of Corporate Affairs to implement an e-governance solution, while Wipro Technologies entered into a strategic partnership with US-based SuccessFactors to market and provide consulting and implementation services for the latter's business execution suite globally. Tata Consultancy Services and HCL Technologies continue to remain volume outperformers, while Infosys, with its improving volume growth, and Wipro on the back of better guidance and top client traction, have also indicated some signs of improvement. However, we believe it is too early for companies to be bullish given the strained macro environment.

IT Stocks Outlook for the week (05-09.11.2012)

www.rupeedesk.in

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.

IT Stocks Outlook for the week (29.10.2012-02.11.2012)

www.rupeedesk.in

Stocks of major information technology companies are likely to trade in a narrow range next week, but HCL Technologies and Tata Consultancy Services may fare better than the other top tier companies. All the major stocks are expected to remain range bound, with a slight possibility of corrections. The top three IT companies, Infosys, TCS, HCL, have declared their Jul-Sep earnings, and the Jul-Sep results of Wipro Technologies. The trend for Wipro is negative in the coming week. Since the stock has already corrected 15% over the last 15-20 trading sessions, it has now entered an oversold territory. There is a possibility of a minor bounce, and if it does then we may see it swinging 5-6% on the upside in the near term.

Wipro will detail its Jul-Sep earnings on Friday. While there has been an improvement in demand in overall IT service industry, margin pressures and rupee appreciation could limit earnings upsides. Rupee depreciation has driven stable stock performance for the Indian information technology names despite material deterioration in year-on-year revenue growth trajectory. This benefit may not last for long, as the rupee depreciation kicker to earnings will likely start to wear off from Dec 2012 quarter, with companies potentially reporting a deceleration in earnings growth to even a decline on yoy comparison. Slowdown and increased competitive intensity drive our cautious view on Tier-1 IT. While Oct-Dec dollar revenue growth of various Tier-1 companies will moderate to a modest 3.5-13.0% in Oct-Dec, benefits of rupee depreciation will level off, as expected rate of the rupee is seen at 52.5 rupees.

For the Dec 2012 quarter, we expect companies to report a decline in earnings (Infosys) or at best, modest growth (Wipro, TCS). We expect TCS to remain the most defensive stock among the large-caps, but believe that the absolute stock upside would need improvement in the demand environment and discretionary spending that remain elusive at this stage. In the coming week, stocks of TCS are expected to trade sideways.