IT Stocks Outlook for the week – 05 to 09.Oct.2015
(In
range; mood cautious on HCL Tech profit warning)
Stocks
of information technology companies are seen range bound next week as market participants
may remain cautious in light of HCL Technologies' profit warning. HCL Technologies
issued a profit warning stating the company's dollar- denominated sales in
Jul-Sep
will be adversely impacted and that it will take a $200 mln charge to resolve a
dispute with a client.
The
profit warning pulled down HCL Technologies' shares by 15% to an over
eightmonth low of 834.85 rupees. We had mixed reviews on the weak guidance by
HCL Technologies. While some await similar warnings from other information
technology companies, others believe that this will not impact the entire
sector.
The
profit warning was a negative surprise and would weigh on HCLT's growth and margins
over the near term. While this appears more of a client-specific issue with no direct
read for the sector as a whole, we note that the frequency of client program disputes
has been increasing of late.
However,
market participants are expected to 'wait and watch' for IT companies to detail
their results. Infosys will detail its Jul-Sep earnings on Oct 12 followed by
HCL Technologies on Oct 19. We expect heavy weight companies Tata Consultancy
Services, Infosys, Wipro and Tech Mahindra to report strong performance for
Jul-Sep on the back of depreciating rupee and pick up in US demand. They prefer
TCS and Infosys among the large-cap companies.
View
on the mid-cap IT companies, though, is expected to be weak as they are not
seen benefiting from the rupee depreciation.
