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Sharekhan special: IT Stocks

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CIOL Bureau
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BANGALORE, INDIA: Here is a review of some IT stocks, courtesy, Sharekhan.

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* The top lines of frontline tech stocks are expected to grow in the range of 6.5-11.1 percent sequentially in the rupee terms in Q1FY2009. The growth in the top lines is primarily driven by a volume growth of 1-2 percent, boosted by ~7 percent depreciation in the rupee against the US dollar during the quarter. In dollar terms, the sequential growth is expected to remain muted during the quarter.

* On the margin front, the margins of frontline IT companies during the first quarter of the fiscal are generally dented by visa cost. For Infosys and Tata Consultancy Services (TCS), the margins in the first quarter of the fiscal are impacted by wage hikes, in addition to visa cost. Consequently, the operating profit margins (OPM) of Infosys and TCS in Q1FY2009 are likely to decline by around 185-205 basis points, in spite of the positive impact of the rupee depreciation.

* On the net income front, we expect HCL Technologies' net income to decline by 29.6 percent year on year (yoy), as the company had reported foreign exchange (forex) gains of Rs 250 crore in Q1FY2008. Beside this, HCL Technologies and Wipro Technologies had increased their hedge positions in Q4FY 2008. Hence, the two companies may report higher forex losses, given the recent depreciation of the rupee.