IT Stocks Outlook for the week – 13 to 17.04.2015
( www.rupeedesk.in )
Stocks
of information technology companies are likely to show some volatility in the
coming week on account of the impending results announcements of Tata
Consultancy Services and Mindtree.
Both
companies will report their results on Thursday after market hours. Tata
Consultancy Services shares, which had corrected through March after the
company held out a disappointing forecast, has been rising for the last two
weeks on an assessment that the correction has been overdone, and that the
results may not be all that bad.
However,
stripped of the impact of an appreciating rupee, revenue is seen rising 2.5% on
quarter. We believe weak 3Q results and soft fourth-quarter guidance are
already in the price, with TCS underperforming Infosys and Wipro by 11/13%
year-to-date and its one-year forward price/earnings premium vs INFO narrowing
to just 10% (vs ~25% a year back).
Not
surprisingly, TCS stock was up 4.4% this week, making it the top performing
large-cap IT stock in India, while other stocks like Infosys, HCL and Wipro
moved largely in line with the market.
Overall,
the market is expecting 2-3% revenue growth for IT companies for Jan-Mar, when
the numbers are adjusted to strip away the impact of currency movements.
We
expect Tier-1 IT to deliver a healthy 2-3.8% sequential constant currency
revenue growth in the March quarter on top of an unconventionally strong
December quarter.
IT
budget cycles of clients follow calendar year. Budget allocations take place in
the first couple of months and IT spending picks up as the year progresses.
Given this, absence of growth acceleration in the March quarter is normal.
If
TCS' results fail to live up to expectations, it is expected to impact the
broader IT sector stocks as well. HCL Technologies will report its results on
Apr 21, followed by Infosys on Apr 24.
