MUMBAI: With no change in the US economic situation and fresh IT investments by clients on hold, the weakening rupee is the only focus point for investors in IT stocks. While this has provided a breather, it has not made a significant difference to company outlook. In the last three months, the rupee has weakened more than 7% against the dollar. During this period, the Sensex lost 12.31% while the BSE-IT index gained a little over 11%. A further re-rating of the entire sector is expected to happen by the third quarter of the fiscal, when companies anticipate slowdown to ease and more business to start flowing in.
“We don’t expect the fall in the currency to translate to a corresponding increase in earnings. But any uptake in demand, coupled with hedging gains will result in an upward revision in the current valuations of IT firms,” said a senior analyst with a domestic brokerage. This is also borne out by the recent statement made by a senior Satyam Computer Services official when the rupee touched 43.21 against the dollar, that the company was not looking at revision of its FY09 guidance. The stock of Satyam Computers has lost nearly 8% in the last one month.
IT companies have forecast moderate to good growth for the fiscal 2009 with most of the growth being back-ended or happening in the last two quarters. “Unless there is something positive on the (business) volumes or billing (pricing), I don’t see a re-rating. We have to wait and see if volumes (number of contracts) go up,” said an analyst.
Companies are also expected to realise the benefits of a lower rupee from the second quarter onwards. For the first quarter, all of them are expected to have hedging losses because they have entered into forward contracts at higher levels. This will result in mark-to-market losses at the end of the June quarter, an analyst said. Gains will also vary depending on the hedging policy of the company.
Tata Consultancy Services and Wipro, which have entered into long-term contracts of over a year, are expected to have hedging losses over the next three quarters. Infosys Technologies, which has only $750 million in hedges, will benefit the most and could realise the full benefit of the rupee movement from the second quarter onwards. TCS has shed 6% in the last one month, falling from Rs 933.70 to Rs 877.75, while Wipro has lost more than 5% in the same period to close at Rs 456.50 on Wednesday.
In a recent report, CLSA has advised “caution” on Indian IT stocks. CLSA feels that the recent rally has taken much of the upside off the table and the next upswing will have to wait for demand trends. Interestingly, CLSA does not have a buy rating on any of the top technology counter.
“We don’t expect the fall in the currency to translate to a corresponding increase in earnings. But any uptake in demand, coupled with hedging gains will result in an upward revision in the current valuations of IT firms,” said a senior analyst with a domestic brokerage. This is also borne out by the recent statement made by a senior Satyam Computer Services official when the rupee touched 43.21 against the dollar, that the company was not looking at revision of its FY09 guidance. The stock of Satyam Computers has lost nearly 8% in the last one month.
IT companies have forecast moderate to good growth for the fiscal 2009 with most of the growth being back-ended or happening in the last two quarters. “Unless there is something positive on the (business) volumes or billing (pricing), I don’t see a re-rating. We have to wait and see if volumes (number of contracts) go up,” said an analyst.
Companies are also expected to realise the benefits of a lower rupee from the second quarter onwards. For the first quarter, all of them are expected to have hedging losses because they have entered into forward contracts at higher levels. This will result in mark-to-market losses at the end of the June quarter, an analyst said. Gains will also vary depending on the hedging policy of the company.
Tata Consultancy Services and Wipro, which have entered into long-term contracts of over a year, are expected to have hedging losses over the next three quarters. Infosys Technologies, which has only $750 million in hedges, will benefit the most and could realise the full benefit of the rupee movement from the second quarter onwards. TCS has shed 6% in the last one month, falling from Rs 933.70 to Rs 877.75, while Wipro has lost more than 5% in the same period to close at Rs 456.50 on Wednesday.
In a recent report, CLSA has advised “caution” on Indian IT stocks. CLSA feels that the recent rally has taken much of the upside off the table and the next upswing will have to wait for demand trends. Interestingly, CLSA does not have a buy rating on any of the top technology counter.
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