IT Stocks Outlook for the week – 09 to 13.Jun.2014
(www.rupeedesk.in)
(www.rupeedesk.in)
Stocks of information technology
companies are likely to open on a confident note on
Monday as US jobs data came in
marginally stronger than expected on Friday evening,
but may continue to lag the
broader market in case of a strong up move in the overall
market. IT stocks lagged the
market last week as the Nifty and the Sensex put up one of
their best performances in recent
times, rising nearly 5% in five days. In comparison, the
CNX IT Index was nearly flat. The
previous week had seen a bounce-back in IT stocks
ahead of the expiry of futures
and options.
IT stocks have consistently
underperformed the market since mid-May, by when it was
clear that India would have a
government led by pro-reform Narendra Modi. While the
Nifty has gained 14% since May 9,
the CNX IT has actually lost 0.5% during the period.
With the markets already at their
historic highs, any further increase in their levels will
continue to see IT stocks
underperform, though declines are not expected. The market
seemed to have shrugged off news
of the exit of the 12 senior management professionals
from Infosys over the last one
year. However, a cause for concern has been the rising
rupee, which has risen to about
59 rupees to the dollar from about 62 rupees in February.
However, believe that the strong
performance of the US economy would offset the
impact of the rising rupee. Earnings
for IT companies have largely tracked revenue
growth, and not as much
rupee-dollar levels. We are positive on IT, given US$ revenue
growth visibility for these
companies, higher correlation to US$ revenue growth than to
currency, and resilience to
potential domestic economic shocks. Another factor that is
likely to influence the market
next week is India's industrial production data for April and
inflation numbers for May, both
of which will be released on Thursday.
