The Hindu Business Line : Infosys downward forecast could drag IT stocks down: Analysts

A downward revision of guidance by IT bellwether Infosys Technologies could send information technology stocks on a free fall in subsequent trading sessions.

Several analysts that Business Line spoke are of the view that there could be erosion of at least 10 per cent in the benchmark BSE IT index in the next few months.

IT index tumbles

The BSE IT index on Friday was down by 10.11 per cent to close at 2,380.15. This index has shed 25.91 per cent in the past week and 42 per cent in the past month.

The current instability in the global economic environment and the currency market has prompted Infosys management to reduce its revenue target for fiscal 2009 to around $4 billion.

Infosys revision

Being the second largest Indian IT firm and the first to come out with quarterly numbers, Infosys’ earnings and guidance are seen as a barometer of how the IT sector might perform might fare in the midst of the global financial crisis.

The general feeling is that IT spends by companies, especially in the banking, financial services and insurance domain, could be under pressure due to turn of events globally.

Though this quarter’s results would not be impacted, the future outlook for Indian IT companies is not very good. “The bad news just does not seem to end,” said an IT analyst.

IT spending

Even though many IT companies say that the current liquidity crunch will increase offshoring to low-cost countries such as India, no Indian IT company will be able to maintain their earnings guidance if there is a reduction in IT spends by client companies, said Mr Siddharth Purohit, Senior Research Analyst, Latin Manaharlal Securities Pvt Ltd.

As a result, the annual growth rate for IT companies could come down to around 10 per cent as compared to the 30-25 per cent growth a couple of years ago.

Generally, FIIs have holding of 50-65 per cent in frontline IT stocks, said Mr N.V. Shah, Director, NVS, Brokerage. Since FIIs are expected to continue being on a selling mode, IT stocks could further tumble, he added.

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