Buoyed by strong Q3 numbers put up by IT major Infosys Ltd and the positive guidance given by its management, stocks of IT companies were on a roll this morning.

That many of them hit fresh 52-week highs and the shares of relatively small IT companies also joined the party reflected the overall positive mood that gripped the IT sector.

Shares of Infosys came close to breaching the previous 52-week high when the stock touched Rs 3,575, barely Rs 5.50 less than its previous 52-week high (Rs 3,580.50) before easing to Rs 3,558.30, a solid Rs 107.50 gain on the back of strong third quarter numbers.

Infosys had reported a near 20 per cent jump in net profit for the third quarter of the current fiscal at Rs 2,875 crore compared with Rs 2369 crore in the same quarter in the previous fiscal.

Infosys' numbers had a positive spin on stocks like Tech Mahindra, TCS and HCL Tech.

TechM touched a new yearly high of Rs 1,885.90 before easing to Rs 1,885.25, a gain of Rs 56.20.

TCS shares vaulted to Rs 2,289.30, a new 52-week high, before the stock settled at Rs 2,278, a gain of Rs 36.05. HCL Tech also reached a new yearly high of Rs 1,299.70 before easing to Rs 1,296.50, a gain of Rs 11.25.

Apart from these IT biggies, Vakrangee also reached a new 52-week high of Rs 92.30 before being down marginally to Rs 91.40, a gain of Rs 2.10

Other gainers were NIIT Tech that was up by Rs 14.95 at Rs 370.45, Wipro up Rs 11.20 at Rs 552.10, eClerx Services that witnessed a significant gain of Rs 21.40 to move up to Rs 1,066.40 and CMC, which jumped by Rs 32 to Rs 1,680.55. However, MindTree was up by just 15 paise to Rs 1,653.

The CNX IT index was up by about 214 points at around 11.35 a.m.

'Accumulate' rating

The strong show of Infosys has drawn a positive response from the Mumbai-based broking house Angel Broking which has given an 'accumulate' rating for the stock.

Commenting on the Infosys' Q3 results, Ankita Somani, Research Analyst -IT, Angel Broking, said that while the company's results with operating margins were higher than estimates, the top-line was below estimates.

The dollar revenue had grown by 1.6 per cent q-o-q (estimate – 2 per cent). The volume growth was lesser than expectations since the onsite volume fell 3.4 per cent q-o-q mainly because of shift to offshore.

She said: "Infosys’ operating margins have been a concern since last six quarters and during Q3FY20,14 the company posted whopping 145 bps q-o-q growth in EBIT margin to 25 per cent'' with utilisation levels going up to 74.1 per cent (73.7 per cent in Q2FY2014) and sequential decline in S&M spends.

She said the Infosys management was of the view that the global economic environment had improved and looked exciting for IT services industry.

She felt that the company has "still got headroom to increase its utilisation level by 300 bps'' to be comparable with peers. This would help the company to increase its operating margins further.

Ankita Somani felt that while the impact of high profile exits from Infosys could be felt in the medium term, the company which is "system driven with a healthy management bandwidth'' would not be impacted on the long-term.

The latest results as well as guidance given were "largely inline with expectations and factored in the stock''.

This limited any sharp upside potential for the scrip in the immediate future, she said, adding however "we recommend accumulate rating on the stock''.

(This article was published on January 10, 2014)
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