IT turf: Good earnings, but weak on bourses
While IT sector has come out with buoyant quarterly results, despite all the talk about wage inflation and the Indian BPO sector losing its shine, the gains have been limited to the balance sheets and have not spilled over to their share prices.
NEW DELHI: While IT sector has come out with buoyant quarterly results, despite all the talk about wage inflation and the Indian BPO sector losing its shine, the gains have been limited to the balance sheets and have not spilled over to their share prices.
The four IT majors present on the Bombay Stock Exchange benchmark Sensex -- Infosys, TCS, Wipro and Satyam -- as well as some other mid-cap companies have all reported impressive results ahead of the market expectations, but their share prices have continued their downward journey except for some temporary spurts in between.
The Indian market has plummeted more sharply in the past two weeks than its Asian peers and the sluggish sentiments have been common across the board, including IT stocks that generally tend to surge on the back of good earnings results.
Even Infosys, which has the second biggest weightage on the Sensex, failed to cheer up the market beyond the one day when it announced its Q1 results. Analysts said Infosys led the IT pack in terms of volume growth, profitability as well as outlook for revenue growth and margin expansion in the coming quarters.
The analysts expect Infosys to retain its lead given recent investments into workforce and sales and marketing infrastructure, which might boost its profitability and the share prices alike going forward.
The analysts are unanimous on the factors that have kept a good set of June quarter results away from boosting the share prices. While continuing sluggishness in the broader market sentiments has been the major spoilsport, a good performance from the IT sector had factored into the share prices much before the earnings season began, they said.
The analysts are also maintaining their bullish stance on the sector. Man Financial's Nimesh Mistry said in a recent report on the sector that business volumes would continue to grow strongly in the medium term and the companies would continue to bag some large offshore contracts.
Leading brokerage firm Sharekhan said the performance of the IT majors has been ahead of expectations in Q1 with robust volume growth as well as a favorable demand environment. Sharekhan has reiterated its bullish stance on the sector given the robust demand environment, stable billing rates and the ability to cushion against cost pressures.
The optimism on the robust performance by IT firms stems from the fact that most frontline companies are expected to continue to do so over the next few quarters and most companies have given good earnings guidance for the current financial year, another brokerage firm ICICI Securities said in a research note to its customers.
While some analysts have expressed their concerns on the supply side, like the wage inflation and high attrition rates, others are optimistic about the industry majors taking up certain operational levers to cushion the impact of the potential cost pressures. The analysts also expect the margins, which had been under pressure due to the recent salary hikes, to improve going forward as the companies would start deploying their newly hired employees.
IT companies are also likely to continue to reap the benefits of the depreciation of the rupee, which was a major cushion against the adverse impact of wage inflation on operating margins in the June quarter. While, the IT sector has underperformed the benchmark Sensex by a significant margin in the recent past, the analysts expect sustained strength in financial performance to make way for share price appreciation on a one-year perspective.
The four IT majors present on the Bombay Stock Exchange benchmark Sensex -- Infosys, TCS, Wipro and Satyam -- as well as some other mid-cap companies have all reported impressive results ahead of the market expectations, but their share prices have continued their downward journey except for some temporary spurts in between.
The Indian market has plummeted more sharply in the past two weeks than its Asian peers and the sluggish sentiments have been common across the board, including IT stocks that generally tend to surge on the back of good earnings results.
Even Infosys, which has the second biggest weightage on the Sensex, failed to cheer up the market beyond the one day when it announced its Q1 results. Analysts said Infosys led the IT pack in terms of volume growth, profitability as well as outlook for revenue growth and margin expansion in the coming quarters.
The analysts expect Infosys to retain its lead given recent investments into workforce and sales and marketing infrastructure, which might boost its profitability and the share prices alike going forward.
The analysts are unanimous on the factors that have kept a good set of June quarter results away from boosting the share prices. While continuing sluggishness in the broader market sentiments has been the major spoilsport, a good performance from the IT sector had factored into the share prices much before the earnings season began, they said.
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The analysts are also maintaining their bullish stance on the sector. Man Financial's Nimesh Mistry said in a recent report on the sector that business volumes would continue to grow strongly in the medium term and the companies would continue to bag some large offshore contracts.
Leading brokerage firm Sharekhan said the performance of the IT majors has been ahead of expectations in Q1 with robust volume growth as well as a favorable demand environment. Sharekhan has reiterated its bullish stance on the sector given the robust demand environment, stable billing rates and the ability to cushion against cost pressures.
The optimism on the robust performance by IT firms stems from the fact that most frontline companies are expected to continue to do so over the next few quarters and most companies have given good earnings guidance for the current financial year, another brokerage firm ICICI Securities said in a research note to its customers.
While some analysts have expressed their concerns on the supply side, like the wage inflation and high attrition rates, others are optimistic about the industry majors taking up certain operational levers to cushion the impact of the potential cost pressures. The analysts also expect the margins, which had been under pressure due to the recent salary hikes, to improve going forward as the companies would start deploying their newly hired employees.
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IT companies are also likely to continue to reap the benefits of the depreciation of the rupee, which was a major cushion against the adverse impact of wage inflation on operating margins in the June quarter. While, the IT sector has underperformed the benchmark Sensex by a significant margin in the recent past, the analysts expect sustained strength in financial performance to make way for share price appreciation on a one-year perspective.
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