IT Stocks Outlook for the week – 20 to 22.10.2014

IT Stocks Outlook for the week – 20 to 22.10.2014

Stocks of information technology stocks are expected to move in a narrow range with a
negative bias next week, and will also take cues from Wipro's second quarter earnings to be
announced on Wednesday. This week, the mood in the IT industry wasn't positive as both
Tata Consultancy Services and HCL Technologies did not post overwhelming numbers.

TCS reported lower-than-expected Jul-Sep numbers as two of its verticals, UK insurance
and US retail, underperformed. The company reported consolidated revenue of 238.17 bln
rupees, while analysts were expecting 239.57 bln rupees. Its net profit of 52.88 bln rupees
was also slightly below street expectations of 53.64 bln rupees.

Yesterday, The IT index closed in the red, given the negative market sentiment. IT index
came under selling pressure. TCS stock opened sharply lower as the street reacted to the
company's outlook which indicated that it may not be able to beat FY14 growth rate of
16.2%. HCL Technologies' Jul-Sep results also disappointed the Street as both net profit and
sales declined sequentially. While the net profit for the quarter declined 15.2% sequentially
to 16.82 bln rupees, the net sales declined 15% on quarter to 40.54 bln rupees.

Bengaluru-based mid-sized IT company Mindtree was the only one to beat analyst
expectations with a net profit of 6.2% on quarter to 1.37 bln rupees on the back of a
sequential revenue growth of 5.3% to 8.89 bln rupees.

We expect Wipro to post a 1.9% sequential growth in revenues. The IT services division's
earnings before interest and tax margin is expected to decline 21 basis points on quarter on
account of wage hikes for two months. The industry will closely watch Wipro management's
commentary on the overall demand environment and large deal wins; and the outlook for
the margin and revenue guidance for Oct-Dec. Investors will continue to closely track the
rupee as 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. Yesterday, the rupee closed at 61.4400 per $1 as against 61.8400 on Thursday.