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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IT sector - Overview of Performance

Dear All,

Is it the right time to enter the IT sector and make investments ?

At the outset the First Quarter 09-10 numbers are good enough it does not give a picture of getting of woods. The US economic woes continue to haunt Indian IT firms.

Infosys :

India's largest IT firm by sales Infosys shot up 2.75%. The government has launched a Government-to-Business (G2B) services e-biz project with Infosys as the technology partner. The project is among the 27 Central, State and Integrated Mission Mode Projects (MMPs) under the National E-Governance Plan (NEGP).

Wipro :

India's third largest IT exporter by sales Wipro advanced 0.99% after consolidated net profit as per Indian accounting rules rose 0.54% to Rs 1015.50 crore on 2.5% fall in sales to Rs 6289.10 crore in Q1 June 2009 over Q4 March 2009. The company announced the results before trading hours on Wednesday, 22 July 2009.

TCS :

India's largest IT exporter by sales TCS gained 2.19% after net profit rose 15.27% to Rs 1276.44 crore on 0.12% fall in sales to Rs 5609.60 crore in Q1 June 2009 over Q4 March 2009. The company announced the result after trading hours on 17 July 2009.

Tech Mahindra :

Tech Mahindra rose 1.95% even as net profit dropped 43% to Rs 131.6 crore on 6% rise in total revenues to Rs 1,113 crore in Q1 June 2009 over Q4 March 2009. The company attributed fall in net profit to surge in interest costs on debt it took to buy Mahindra Satyam, the erstwhile Satyam Computer Services. The results were declared after market hours on Wednesday, 22 July 2009. Shares of Mahindra Satyam surged 15.09% to Rs 104.90

Buy on dips IT shares for long term for a 15-20% return

Raghav

Chief Investment Officer

Intelligent Investor -

Ravina Consulting

Bangalore -India

TA- Tech Mahindra, TNPL, Essar Oil, Central Bank, DCB, Graphite, TCS, KSB Pumps, NBVenture

Please let me know the outlook for Tech Mahindra. V V Ravi Kumar

Tech Mahindra (Rs 280.6): The steep decline in the last quarter of 2008 halted at Rs 216 and the stock has been moving in a range between Rs 200 and Rs 320 since this trough.

Tech Mahindra tested the support at Rs 200 in January 2009 as well and is currently in a short-term up-trend. Immediate resistance for the stock is around Rs 300 and failure to breach this level will result in the continuation of the sideways move in the range indicated above.

However, a breach of the upper boundary will give the targets of Rs 437 or Rs 586 over the next 12 months.

Investors with a shortterm perspective can hold the stock with a stop at Rs 235. Long-term investors can hold with a deeper stop at Rs 180.

This stock can be accumulated as it moves close to Rs 200 with the same stop.

Investors should however bear in mind that the longterm trend in the stock is down and the risk of further decline in the long-term remains open. Therefore fresh purchases are not recommended on a close below Rs 180.

I am holding 2000 shares of Tamil-Nadu Newsprint purchased at Rs 90. Should I hold the stock or buy more or exit at current level? Anuj Jain

TNPL (Rs 59.7): TNPL was in a structural bull-market from August 1998 to January 2008. Though the long-term trend is down since the beginning of 2008, the stock is pausing at the key long-term support at Rs 60. A long-term trough is possible in the area between Rs 50 and Rs 60. Investors can therefore hold the stock as long as it does not record a weekly close below Rs 50.

Short-term resistances for the stock are at Rs 65 and Rs 75. But a rally to Rs 84 is possible over the next couple of years.

I have purchased Essar Oil at Rs 94. What is the prospect for this stock? P S Rajesh

Essar Oil (Rs 80.3): Essar Oil recorded a dizzying rally from Rs 50 to Rs 333 in the last three months of 2007 when the bull-market frenzy was at a crescendo. The un-sustainability of such up-moves was amply demonstrated in the fact that the stock was back at Rs 54 in October 2008. The stock is moving in a range between Rs 60 and Rs 100 since the Rs 54-trough. This range can continue to shackle the stock over the next few months and we do not envisage a move beyond Rs 130 over the next 12 months.

Support below Rs 50 is at Rs 40. The long-term floor for the stock could be in the band between Rs 30 and Rs 60.

I have purchased Central Bank at Rs 45 and Development Credit Bank at Rs 35. Can I buy more of these stocks at current levels or wait for further correction? Sudheer Shanbhag

Central Bank (Rs 36.7): This stock declined below the 2008 low at Rs 32 to form a new low at Rs 29.7 on March 9. Though the stock has gained over 20 per cent from this trough, it needs to rally further to make the near-term and medium-term view positive.

Short-term resistances for the stock are at Rs 41 and Rs 50. Investors with a shorter investment horizon can sell the stock around the Rs 50 level. Fresh purchases are however advised only on a close above Rs 54.

Development Credit Bank (Rs 22.0): This stock fell way below its listing price of Rs 35 to bottom at Rs 13.5 on March 6. A sustainable bottom appears to have been formed at this level since the stock has moved strongly above the intermediate term trend-line as well as the 50- day moving average.

Next resistance for the stock is around Rs 25. Once this level is cleared, DCB can head towards Rs 36 over the next one year. Investors can hold the stock with a stop at Rs 17.5 and try to book profits at the levels mentioned above.

I have 2000 shares of Graphite India purchased at Rs 23. What is the outlook on this stock?Kanduri Venkata Ramakrishna

Graphite India (Rs 26.1): This stock is attempting to reverse from the trough at Rs 20 formed in March. The recovery this far is not convincing and Graphite India can face resistance at Rs 27 and then Rs 31 in the nearterm.

Investors with a shortterm perspective should exit the stock on reversal from either of these levels.

Inability to move past these resistances would indicate that the stock can head lower towards the next long-term support at Rs 15. Mediumterm view on Graphite India will turn positive only on a close above Rs 39.

Let me know the best price at which to buy Tata Consultancy Services. J Rajagopalan

TCS (Rs 578.5): TCS made a life-time low at Rs 418 in October 2008 and has been moving sideways in the band between Rs 450 and Rs 600 since then.

It is not yet certain if a sustainable trough has been formed last October since sideways move of this kind can be followed by another leg of the decline.

Therefore only investors who have a high risk-appetite can take exposure to this stock close to Rs 450 with a tight stop at Rs 400. In other words, fresh purchases are not recommended on a close below Rs 400. Else, wait for a weekly close above Rs 600 before buying the stock.

Next medium-term target for the stock would be Rs 800. Movement between Rs 400 and Rs 800 is the likely range for the next 12 months.

Please advise whether I can purchaseKSB Pumps Ltd at current levels. Rohit

KSB Pumps (Rs 255.5): The long-term trend in KSB Pumps is down. But the stock is currently trying to stabilize around Rs 170. A rangebound move between Rs 175 and Rs 275 is apparent over the last five-months. Immediate resistance for the stock is at Rs 286. Wait for a close above this level before buying the stock. Another option would be to wait for a correction to the zone between Rs 200 and Rs 220 to buy with a stop at Rs 170.

Fresh purchases should be avoided on a close below Rs 170 since the next support for the stock is at Rs 140 and Rs 90.

Please discuss the prospects of Hanung Toys and Nava Bharat Ventures. Ramana Sarma

Hanung Toys (Rs 36.2): Hanung Toys recorded a lifetime low at Rs 24 in January 2009 and is currently consolidating in the band between Rs 24 and Rs 40.

The risk of the stock declining further to a new low remains as long as it trades below Rs 53. A close above this level would be the first indication that a sustainable recovery is underway. Investors with a short term perspective can sell the stock on rallies to Rs 42 or Rs 48.

Nava Bharat Ventures (Rs 138.8): This stock is reversing from the long-term support at Rs 90. The chart pattern since the November 2008 trough is positive and implies that a long-term bottom could have been formed at Rs 90 in November 2008.

However, the stock needs to cover a lot more ground before the medium-term view turns positive. Key mediumterm resistance is in the band between Rs 160 and Rs 180.

Investors with a lower investment horizon can divest their holding in this band. Stop loss for long-term investors can be at Rs 85.

- Lokeshwarri S.K.

businessline 06-03-09