IT Stocks Outlook for the week – 08 to 12.09.2014

IT Stocks Outlook for the week – 08 to 12.09.2014

Information technology stocks next week are expected to trade on a positive note
initially, with some correction expected in the course of the week. Investors will continue
to closely track the rupee as the currency movement is crucial for IT companies. IT
companies bill majority of their revenues in dollars and so they earn more if the Indian
currency falls against the dollar.

Typically, for every 1% change in the rupee-dollar equation, margins of tier 1 Indian IT
companies are impacted by 25-35 basis points. After being stuck in a tight range for most
part of the session, the rupee closed at an over five-week high of 60.3550 against the US
dollar on Thursday on sales of greenback by foreign banks.

During the week, Infosys announced it has been selected by BP to provide IT services for
application support and development for an estimated value of $500 mln. Wipro said it
has won a five-year contract from US-based international tobacco giant and maker of
Marlboro cigarettes, Philip Morris International Inc, to provide a full suite of IT
infrastructure management services.

Earlier this week, Wipro said it is planning to double its 70-strong workforce in Oman
over the next 12-18 months on rising demand for its services. "Large deal closures in
traditional services continue to power growth and provide comfort to our revenue growth
estimates. Discretionary spend is still muted but can improve and power growth in the
medium term, but Indian IT will need to make the relevant investments to capture this

The rupee staying at current levels will allow Indian IT firm the cushion to do so, while
giving greater comfort to earnings growth expectations.