The Hindu Business Line : Infy nos dampen IT stocks

Mumbai, July 11 The BSE IT Index erased its gains in early trading to shed almost 7 per cent on Friday, post the Q1 results of IT bellwether Infosys Technologies. All the scrips in the BSE IT index ended the day in the red.

Infosys, Satyam, TCS and Wipro were among the worst performing scrips amongst the 30-Sensex stocks. Infosys closed 7.18 per cent down from its previous close, at Rs 1676.45, Satyam closed 7.19 per cent lower, at Rs 444.45, TCS fell 8.03 per cent to close at Rs 799, while Wipro ended day at Rs 412.30, down 4.34 per cent. These scrips have shed between 7 and 12 per cent in the last one month, while the Sensex has dropped 11 per cent during the same period.

Impact on margin

The IT stocks were battered particularly badly on Friday because of the Infosys results, said analysts. The company reported a 21 per cent rise in its net profit for the quarter ended June 30, 2008, due to the weakening rupee.

But its margins were impacted because of salary hikes and visa costs. The stock opened almost Rs 50 up from its previous close, touching an intra-day high of Rs 1,876. But it dropped 7.18 per cent, as investors booked profits due to a restrained dollar-based guidance from the company, said marketmen.

“Infosys recorded an impressive 6.9 per cent quarter-on-quarter and 28.7 per cent year-on-year growth in top-line for Q1FY2009. However, in dollar terms, sequential growth in top-line stood at a mere 1.1 per cent,” said Mr Harit Shah, Research Analyst-IT, Angel Broking. He also added that he is positive on the stock and his recommendation is to “accumulate at every fall.” A Citigroup report also maintained its buy recommendation on the scrip. “Growth looks set to accelerate and the company is best positioned within the sector to handle challenging market conditions,” stated the report.

US Economy

Marketmen said they expect the results of the other IT firms to be in line with that of Infosys. An Enam Research report stated that it expects the Q1 revenues of the top-3 companies to be between 5 per cent and 7 per cent quarter-on-quarter and 25-32 per cent year-on- year. But they are not bullish on the sector, at least in the near term.

“With the rupee-dollar fluctuations and the rising crude prices, there could be further sell-offs happening in the IT counter,” said Mr Alex Mathew, Head of Research at Geojit Financial Services. The US economy is also not looking very good at least for the time being, which is bad for the IT companies, added Mr Sanjay Someshwar, of Ventura Securities.

In the long run, the IT sector looks good as this sector is not affected much by the rising inflation, said Mr Mathew. “IT scrips are low beta stocks, so when the markets reach a panic situation these scrips will not fall much,” added Mr Mathew.

The Enam report also stated that Q1FY09 will likely be the last quarter with muted performance and the large caps will show near-double-digit growth rates in US dollar terms from Q2-FY09 onwards.

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