The
overall direction of information technology stocks, which saw profit booking
this week,
is likely to be set by projections by the industry body on Tuesday about
India's IT exports
in financial year 2014-15 (Apr-Mar). Going by the bullish commentary from companies
such as Tata Consultancy Services, Wipro, and Infosys, expectations are that National
Association of Software and Services Companies will set a growth target of 14- 16%
for 2014-15. Companies
such as Infosys, TCS and HCL Technologies, which account for more than half
of India's IT exports, are on track to end the current financial year with
growth of 12- 17%,
largely above NASSCOM's target of 12-14% for the year. As a result, a bullish estimate
of 14-16% growth for exports for next year would imply growth rates of 14-18% for
top tier IT companies, and could lead to a positive rerating of their stocks. Historically,
the top-5 Indian IT vendors have outperformed industry growth. This phenomenon
could repeat in FY15, thus triggering upgrades in consensus estimates for top-5
players, particularly for Infosys and HCLT (HCL Technologies), while TCS could see
marginal upside. After galloping for the past seven months, most IT stocks saw
profit booking
early this week. The notable exception was Tech Mahindra, which reported better-than-expected
results. In
addition, a lower-than-expected guidance on revenue from Cognizant Technology Solutions,
the second-biggest IT exporter from India, on Thursday further dampened sentiment
and pulled down frontline IT stocks by 1-2% yesterday. Stocks of TCS, Infosys and
HCL Technologies fell 3-5% during the week, compared to a 0.4% decline in the Nifty.
The determination showed by the US Federal Reserve to push ahead with its $10- bln-per-month
cut in its stimulus program is also expected to weigh on frontline IT stocks,
which typically have high foreign investor holding. Top
Indian IT stocks have risen by 50-85% in the last seven months, boosted by
rising profitability
owing to rupee depreciation, strengthening of the US market, and an overall shift
in investor interest away from domestic-market focussed companies.
