GOLDEN RULES FOR TRADING

IT Stocks Outlook for the week – 18 to 22.05.2015

IT Stocks Outlook for the week – 18 to 22.05.2015
(Seen recovering as market factors in muted earnings)

Stocks of information technology companies could trade with a positive bias next week, with the large cap companies being expected to do "reasonably well", recovering after the sector posting significant losses owing to muted earnings in the Jan-Mar quarter. However, the mid cap companies may fail to bounce-back in the next week. The Indian stocks markets witnessed another volatile week along with the domestic currency, breaching the crucial psychological level of 64.00 rupees per dollar, falling as low as 64.2525 per dollar during the week. While the rupee's depreciation is otherwise good for these companies as they export software and services, a sharp and sudden fluctuation could lead to losses on foreign exchange hedging and loans.

However, the local indices recovered drawing support from recovery in European equities as a result of easing sovereign bond yields, rebound in the rupee, and positive India consumer price inflation data. Among big IT stocks, HCL Technologies fell by 1.25% during the week, followed by Tata Consultancy Services which fell by 0.64%. Infosys was the only major company to rise marginally by 0.19%. Share indices are expected to trade within a narrow range next week with Corporate earnings and developments in overseas markets expected to provide broad cues to the local equities.

US Fed is likely to hike rates which represent strengthening of the economy. It stocks will be the first one to benefit from that. With the volatility in the domestic currency and expectations of an interest rate hike by the US Federal Reserve inching closer, a stronger dollar would enable IT stocks to participate in any bounce-back in the broader market.

While Infosys is expected to outperform, sighting its Q4 FY2015 performance and its FY2016E revenue guidance, TCS owing to a 4% upgrade in the earnings per share in the on going financial year. Most IT companies have detailed their financial results for the Jan-Mar quarter with Mphasis scheduled to detail its results on Friday.


With the volatility in the domestic currency and expectations of an interest rate hike by the US Federal Reserve inching closer, a stronger dollar; IT stocks would participate in any bounce-back in the broader market.