IT Stocks Outlook –
26 TO 30.05.2014
(www.rupeedesk.in)
Stocks of large-cap information technology companies may see
some short covering due
to expiry of future contracts next week, but the
strengthening of the rupee against the
dollar and further shift away from defensive sectors to
cyclical sectors are expected to act
as a cap on any bounce back in IT stocks next week. Monday
morning saw a steep fall in
IT stocks, triggered by the sudden rise in the rupee and a
flight of capital from defensive
sectors to domestic-market oriented plays, but most of the
loss was made good during
the rest of the week.
Most of the frontline IT stocks ended down 1.5-2.0% this
week, except for Infosys which
lost 3.4% during the week. However, it was a different story
for mid-cap IT stocks such
as Rolta India, which will announce its results Saturday,
Just dial, Info Edge and
Geometric, all of which gained more than 10% during the
week.
There is still room for a further appreciation of the rupee
against the dollar owing to a
stable government formation and potential improvement in the
domestic macro
indicators, which could restrict any material outperformance
from the IT sector as a
whole vis-à-vis broader market indices in the near term.
While any populist measure or failure to meet expectations
may again put pressure on the
local currency, a better-than-expected performance on policy
front could keep the
appreciation driving. However, feels the margin hit due to
rupee movement has been
priced in, and further correction is unlikely. While we
acknowledge that INR appreciation
will impact earnings of large- cap IT players in the
2.5-5.0% range.