IT Stocks Outlook for the week – 07 to 10.10.2014

IT Stocks Outlook for the week – 07 to 10.10.2014 )

Indian information technology companies are expected to have an optimistic outlook next week as the overall business environment picks up in the US and Europe.
Our optimism stems from the accelerating growth rate of Indian IT companies (from the better business sentiment in the US and Europe), signs of discretionary spending returning, continued market-share gains, supportive exchange rate and greater expenditure in adopting new technologies.

As per the report, SMAC (social, mobile, analytics and cloud) projects are offering an advantage to mid-sized IT companies. Typically, such projects are smaller relatively. This means, "scale may no longer be utilized as a display of strength, and wins may be more correlated to an organization’s capability.” Also, SMAC is a new technology and most organizations are at a similar stage on the learning curve, so all of them are on a similar footing, the report said.

Earlier in the week, Gartner said that Indian IT infrastructure spending will reach $2 bln in 2015 
and India is set to become the second largest market for data centre infrastructure in the Asia-Pacific region. 

Infosys said it has extended its partnership with US-based Oracle Corp wherein the Indian IT major will provide support systems for the latter's products. According to the agreement, Infosys will provide additional services and solutions for Oracle's digital marketing and big data products, and cloud applications.

Next week, the market will closely watch Infosys' second-quarter results to be announced on Oct 
10. Investors will continue to closely track the rupee as the currency movement is crucial to IT companies. Typically, for every 1% change in the rupee-dollar equation, margins of Tier I Indian IT companies are impacted by 25-35 basis points. Last day, the rupee ended at 61.6100 per dollar compared with 61.7400 on Tue.

We maintain our constructive view on the medium- to long-term prospects of the sector on

expectations of improving demand over this period. The rupee has depreciated over the past few weeks and has provided tailwinds to the sector. However, we believe that the probability of a significant depreciation from the current levels is low.