07 Apr 07 Q4FY2007 IT earnings preview
“The street expectations have toned down considerably in terms of both Q4 performance and the annual guidance for FY2008, and the recent under-performance of the tech stocks indicates that the same has already been factored in the valuations. This essentially means that the negatives have been priced in, leaving limited scope for downside. But positive surprises, especially in terms of higher than expected annual guidance by Infosys, are not ruled out. However, the continued strengthening of the rupee and seasonal weakness in Q1 (due to wage hikes and additional visa related cost) would continue to influence sentiments on tech counters in the short run. We believe that any further weakness would be an opportunity to accumulate the front-line tech stocks and prefer Infosys and TCS.”
With the rupee breaking the Rs.43 per dollar mark, IT companies seem to be operating on very low margins. With stiff competition, companies have not been able to pass on this loss, due to the appreciating rupee, to their customers. Software firsm are already trading at stiff valuations. A bad quarter can send the entire sector and also the entire indian stock market at large into a correction.
Indian stock market – Valuation of large cap IT stocks
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