Following a decent Apr-Jun earnings season and favourable rupee
movement in the past two months, most frontline information technology stocks are
nearing their peak valuations and are likely to remain range-bound with a negative
bias next week. IT majors like Tata Consultancy Services, Infosys, and Wipro are
already trading at 16-20% premium and there is not much room left for further upward
movement.
Yesterday, the rupee, which hit a record intraday low of 62.0300
against the dollar, caused National Stock Exchange's 50-share Nifty to dip below the
psychologically crucial 5500 mark, in its biggest intraday fall since September
2011. Stocks of most top IT companies are unlikely to give major returns
in the short term.
However, they are a safer bet in the downward trending market. We
have a Buy rating on TCS at present but we do not expect to see any major upward
movement in this stock as shares are already trading at a high.
HCL Technology and Tech Mahindra are seen gaining more in the
short term. HCL Technologies is currently trading at lower valuations and could
see significant gains in the short term, owing to an improving demand scenario in its key
markets and ongoing rupee depreciation.
