IT STOCKS OUTLOOK FOR THE WEEK – 15 TO 19.09.2014
( www.rupeedesk.in )
Information technology stocks are seen range-bound next week but the bias is seen
positive because of the weakening trend in the Indian currency vis-a-vis the dollar.
Investors will continue to closely track the rupee as currency movement is crucial for IT
companies. IT companies bill much of their revenues in dollars and consequently they
aim more if the Indian currency falls against the dollar.
The rupee ended at 60.65 for a dollar, compared with 60.39 a week ago. We can expect
INR/USD to weaken by at least 5% to 63-64 range in the short term from the current
range of 60-61. A weaker rupee boosts earnings of the IT majors.
The second quarter (Jul-Sep) is a seasonally strong quarter for IT companies and IT
stocks are more or less trading at their fair valuations. Once September is over, some kind
of consolidation may happen.
Typically for every 1% change in the INR/USD equation, margins of tier 1 Indian IT
companies are impacted by 25-35 basis points.
For Tata Consultancy Services, demand in the US is still project-based, excluding
infrastructure management services which continues to drive the bigger growth theme. In
Europe, Jul-Sep is expected to have weaker earnings than the Apr-Jun quarter due to
holidays in Jul-Aug.
