IT
STOCKS OUTLOOK FOR THE WEEK – 25 TO 28.08.2014
( www.rupeedesk.in )
Next week, stocks of
information technology companies are likely to be in the positive
zone, taking further
cues from any company-specific news. Yesterday, stocks of IT
companies were
trading higher on the back of upbeat US economic data released on
Thursday. Yesterday,
Tech Mahindra and HCL Technologies were the biggest gainers
among the IT stocks,
ending around 3.70% and 2.47% higher respectively.
A report on Thursday showed that
initial US jobless claims fell last week and sales of existing US
homes rose to a
10-month high in July, indicating an economic revival in the coming
quarter. Indian IT
companies derive majority of their revenue from the US and a positive
US economic sentiment
is likely to improve client spending, which, in turn, would
translate into higher
revenues for these companies.
Investors will
continue to closely track the rupee as currency movement is crucial to IT
companies. IT
companies bill majority of their revenues in dollars and consequently they
earn more if the
Indian currency falls against the dollar. Typically, for every 1% change
in the INR/USD rate,
margins of tier 1 Indian IT companies are impacted by 25-35 basis
points. The rupee
touched a three-week high against the dollar on Wednesday on the back
of strength in local
share indices and on increased risk sentiment in Asian markets,
following upbeat US
economic data.
Despite the
strengthening rupee, stocks of IT companies traded on the green this week
because of the
positive sentiment arising from US economic data, and investors'
willingness to go in
for defensives. All IT stocks are in safe hands. Tata Consultancy
Services closed
negative on a weekly basis and is expected to under-perform in the
coming week.
Indian market would
take cues from the Jackson Hole meet (an annual global economic
conference which will
kick off later tonight in the US state of Wyoming). Speculation
over the possible
time of change in the US low interest rate policy continues amid talk of
Jackson Hole being a
currency event. If so, volatility would be high in forex markets,
potentially impacting
Indian markets as well. Consolidation continues despite higher FII
inflows and retail
participation. We advise investors to make use of the correction to add
equity.
