Business Daily from THE HINDU group of publications
Wednesday, Aug 23, 2006
Business Daily from THE HINDU group of publications Wednesday, Aug 23, 2006 |
|
|
|
|
|
|
|
Markets
-
Stock Markets Info-Tech - Stocks Deeptha Rajkumar
Mumbai , Aug. 22 A robust demand environment continues to power software stocks on the bourses. While counters of i-flex Solutions, MphasiS BFL, Patni Computers and Polaris Software have appreciated anywhere between 25-40 per cent, the biggies of the pack including Infosys, Satyam, Wipro, HCL Tech have gained ground anywhere between 11-16 per cent, month-on-month, on the BSE. Analysts said the demand outlook for software companies continue to look strong and there would be further improvement in the profitability scenario over a period of 2007-2010. This would be true particularly for the scale players — Infosys, TCS, HCL Tech etc. "The recent quarter has seen steady to accelerating volume growth, customer wins remain buoyant and key companies have seen employee base grow by around 37 per cent average YoY," an analyst with a leading foreign brokerage said commenting on the current healthy valuations. According to JM Morgan Stanley Research, volume growth for most of the larger companies was steady or accelerated on a sequential basis. Infosys and Satyam showed highest growth in three quarters, while TCS has seen 8 per cent plus QoQ volume growth for three quarters in a row. "Software companies pre-market crash had underperformed the Sensex. Post the crash and due to first quarter results they outperformed expectations. As such every IT company is more bullish on the back of strong demand from the US and UK customers. Customers are gaining more and more appetite for the global delivery model as it is the best way to outsource and at a cost advantage too," said an analyst with Brics PCG. The single biggest risk to the IT companies at this point is a significant slowdown in demand due to a slowdown in the US economy/global economies. A slowdown in demand would mean that pricing would get tighter. However, some analysts believe that a weaker US economy would drive more work offshore on account of pressure to cut costs. "Even if the US witnesses a slowdown, it would go for more outsourcing rather than reduce their IT spend," the analyst with Brics PCG added. Yet there are those who believe that a weaker US economy could (in the long run) result in reduced growth rates for the sector. The significant rupee depreciation against the US and European currencies meant that operating margins were lower in first quarter 2007 on a sequential basis. This has been largely on account of continuing wage inflation and significantly higher visa charges. JM Morgan is of the view that this is a clear indication of margins `trending' down and will continue to do so gradually over a period of time. However closer home, market players remain unperturbed on this factor. "There is no denying that margins are on a secular decline. However, given the client entrenchment, the sustained and growing offshore demand, improvement in billing rates, valuations of software companies, in particular the `scale players', will remain healthy," says Ms Priya R. of Edelweiss Securities.
More Stories on : Stock Markets | Stocks
Article E-Mail :: Comment :: Syndication :: Printer Friendly Page
|
Stories in this Section |
|
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription Group Sites: The Hindu | Business Line | Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |
Copyright © 2006, The
Hindu Business Line. Republication or redissemination of the contents of
this screen are expressly prohibited without the written consent of
The Hindu Business Line
|