IT Stocks - beneficiary of $ appreciation

Information technology (IT) stocks, which had underperformed the broader markets until mid-September, are now back in favour. Since 12 September, the CNX IT index of the National Stock Exchange has outperformed the benchmark Nifty by nearly 20%, more than making up for its underperformance earlier in the year.

Needless to say, this is because of the sharp depreciation of the rupee since August. It closed at 52.73 against the dollar on Tuesday, nearly 20% higher compared with levels of around 44 in early August.

According to an analyst with a foreign brokerage firm, every Rs. 1 increase in the rupee to dollar rate leads to an increase of around 3.5% in earnings for Infosys Ltd. The increase in earnings will be lower for firms such as Tata Consultancy Services Ltd, since they have hedged to a much higher extent. Even if one were to assume that the rupee to dollar rate in the medium term will average 50, this will lead to an over 20% increase in earnings estimates for Infosys compared with August.

Besides, the sharp rise in the rupee will provide a large margin buffer for IT companies, which will not only offset the pressure of wage inflation, but also companies’ leeway to spend more on sales and marketing to generate demand.

This is a welcome relief for companies in the sector as well as investors. In fact, a number of importer firms as well as companies with unhedged foreign currency borrowings are reeling under the pressure of a falling rupee. Given the widening trade deficit and the drop in portfolio and capital flows into the country, the fall in the rupee is expected to continue. In this backdrop, IT stocks may continue to outperform the broader markets.

Of course, the rise will be limited, given the weakening global macroeconomic situation. Infosys’ chief financial officer said on Monday that the company may miss the upper-end of its sales target for the December quarter and the fiscal year because of a deterioration in the global economic environment.

Even so, IT firms seem much better placed compared with firms catering to the domestic economy, which are grappling with high inflation, high interest rates as well as the impact of a declining rupee on their imports and borrowings.

Our Advise

Large Caps - Build your portfolio - hold long term

1. Infosys - Monthly High Rs.2875 and Low of Rs.2487 - Buy around 2500 on dips
2. HCL Tech - Monthly High Rs.380 and Low of Rs.450 - Buy around 400 on dips
3. Wipro - Monthly High Rs.387 and Low of Rs.327 - Buy around 350 on dips
4. TCS - Monthly High Rs.1040 and Low of Rs.1132 - Buy around 1060 on dips
5. Tech Mahindra - Monthly High Rs.640 and Low of Rs.543 - Buy around 550 on dips

Small Caps - Purely Trading bets - hold short term

1. Onmobile Monthly High Rs.640 and Low of Rs.543 - Buy around 550 on dips
2. Educomp Monthly High Rs.280 and Low of Rs.175 - Buy around 170 on dips
3. Mahindra Satyam Monthly High Rs.76 and Low of Rs.64 - Buy around 65 on dips
4. Mindtree Monthly High Rs.380 and Low of Rs.420 - Buy around 400 on dips
5. Patni Monthly High Rs.444 and Low of Rs.343 - Buy around 380 on dips

Source Livemint.com

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Indian IT Sector

Shares of big IT companies fell sharply in trade after the US credit rating was downgraded by S&P on Friday. All the three top IT companies, TCS, Wipro and Infosys, witnessed a huge fall in their share prices on the BSE as these companies earn a major chunk of ther revenue from US and Europe.

"One should buy TCS or Infosys because I do not think business will be impacted so much in the short run, while the long tern story remains intact", says Raamdeo Agrawal, Director and Co-Founder, Motilal Oswal Financial Services in an interview with ET Now.

The US and Europe are the two biggest markets for Indian IT firms. TCS, Infosys and Wipro rely on the US and European markets for about 60 per cent of their revenue. Any slowdown there could straight away affect domestic IT companies having their presence globally.

While most IT companies have expressed caution in the past few months post their quarterly results in the wake of ongoing European debt crisis and high unemployment in the US. However they remain confident of being able to maintain their growth momentum

"On evaluation of IT companies and some of the frontline majors, their business prospects, business model and the possibility of getting new business remain robust and I find that fundamentally things have not changed as much", says Deven Choksey, MD, KR Choksey Securities in an interview with ET Now.

"The valuation of these companies have stayed around 20 plus price earning ratio which has started to come down more because the funds which invested into these particular companies are the trading funds or the index funds and they started pulling out money because of the want of money back home", said Deven.

"However, in comparison to other markets and stocks where the valuations has become far too attractive, shares in IT companies are still reasonably priced", says Deven. "Fundamentally things are not looking as negative as it is being feared about with the fall in the prices of IT companies", Deven further added.

Leading players like TCS and HCL Technologies have posted stellar growth numbers in the past few quarters on the back of steady demand for outsourcing services.

Our Recommendation :

Long term investors should buy TCS around 950 levels, Wipro @ 325, HCL Tech @ 400 levels. The July - Sept Quarter results should be good and hence one can hold for a 15% return in next 2-3 months

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BANGALORE 560084

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sowmya@ravinaconsulting.com

Talk / SMS 08105737966

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TCS - Buy on declines

Tata Consultancy Services Limited (TCS) is an Indian IT services, business solutions and outsourcing company headquartered in Mumbai, India. It is the largest provider of information technology in Asia and second largest provider of business process outsourcing services in India.

TCS, a Tata group company (74 per cent shareholding) is the largest software services exporter from India. It is a global technology services company that provides end-to-end business solutions to its clients.

TCS offers a consulting-led, integrated portfolio of IT and IT-enabled services delivered through a Global Network Delivery Model, recognised as the benchmark of excellence in software development. Along with its subsidiaries, TCS operates in 55 countries with over 1,60,000 employees.

TCS has performed robustly in all its parameters over the last six years. Its impressive fundamentals in the past form a strong base for its future.

TCS has registered an impressive 5 year Net Sales CAGR of 23.4 per cent; this has been a result of high repeat business (95 per cent+) from existing clientele and at the same time continuously increasing new clientele base.

Also, the company has managed to clock a consistent growth in profits, registering a robust 5 year EPS CAGR of 21.9 per cent. TCS has a great past and with its last few quarters performance, it has proved that it has the ability to be a winner, even in tough times.

TCS is India's largest IT company and one of the strongest brands. In the recent past it has outperformed its peers in terms of registering great financial performance. Its ability to generate repeat business from its strong client base and strategic acquisitions have been its major growth driver till today & with our ever-increasing dependence on technology solutions, a company like TCS is poised for good growth in the future.

The company has given decent returns to the investors

Time Span	Price	Change	%Change
Today	1,122.65	-9.35	-0.82
Week	1,150.90	-18.90	-1.64
Month	1,069.55	62.45	5.83
Three Months	1,191.65	-59.65	-5.00
Six Months	1,212.60	-80.60	-6.64
One Year	827.40	304.60	36.81

Over a years time span the scrip gave a super returns of 36.81%. Though in the near term it could test 1100 levels buy on steep declines for a target of 1450

Bought to you by

Ingenious Investor
Equity Research Division

Ravina Consulting
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Polaris - Trade

We recommend a buy in the stock of Polaris Software Lab from a short-term perspective. It is apparent from the charts that the stock has been trending up, after bottoming around Rs 33 in January 2009. However, after encountering resistance around Rs 200 in January 2010, the stock started to move sideways in a broad range between Rs 140 and Rs 200. Polaris has been on a nascent short-term uptrend from November, taking support from its lower boundary (Rs 140).

On January 18, the stock surged 5 per cent accompanied with good volumes, breaching its 21 and 200-day moving averages. This has restored the bullish momentum in the stock. The 14-day relative strength index has entered the bullish zone from the neutral region and weekly RSI is heading towards this zone. Daily moving average convergence divergence indicator is featuring in the positive territory and weekly MACD is on the brink of entering this territory, implying upward momentum. Both daily and weekly price rate of change indicators are hovering in the positive area signal buying interest.

We are bullish on the stock from a short-term perspective. We anticipate its up-move to prolong until it reaches our price target of Rs 191.5 or Rs 195. Short-term traders can consider buying the stock with stop-loss at Rs 178.

Yoganand D.

BL Research Bureau

OUR RECOMMENDATION :

Polaris software is trading in a range Rs.160-190 getting good support around 165 levels and has a resistance around 185 levels. Traders can enter the stock at the bottom of the range on a weak day and sell around 180 levels.