Mumbai: Analysts tracking the technology sector are a divided lot when it comes to shares of Infosys Technologies Ltd.
Shares of Infosys fell 4.47% to Rs1,929.70 on the Bombay Stock Exchange (BSE), dragging all major tech stocks after it. The tech bellwether said as part of its first quarter results that it would pare earnings per share guidance for the full year from Rs80.29-Rs81.58 to Rs77.31-Rs78.11.
Tata Consultancy Services Ltd was the second biggest loser behind Infosys, shedding 3.34% to close at Rs1,146.90. Other major tech stocks, such as Wipro Ltd, Satyam Computer Services Ltd and HCL Technologies Ltd, also fell. The BSE IT index was down 3.34% to 4868.77.
Foreign brokerages, such as UBS, Bank of America Securities, and a few others remain bullish on the Infosys story. The main reason behind the foreign brokerages’ bullishness is Infosys’ 1% upward revision on guidance in its dollar revenues even as it has pared its guidance on its earning per share (EPS) in rupee terms.
That is because Infosys generates much of its business in dollars, but takes a hit when it converts those into rupees. The rupee continued to surge against the dollar during the quarter for which Infosys was reporting results on Wednesday. Abhishek Gami of Bank of America Securities, for instance, maintained a ‘buy’ call on Infosys.
According to Siddharth Purohit, an analyst with a local brokerage, Infosys could revise the EPS guidance upwards for this fiscal year. “The firm has pegged the rupee value at Rs40.58 against the US dollar. However, the average rupee value to a dollar could go up to Rs41. There could be an upward revision in the next quarter,” he said.
Said V. Balakrishnan, chief financial officer of Infosys: “The revised EPS guidance was based on the rupee value against the dollar on Tuesday, at Rs40.58. The EPS for this year could be higher or lower, depending on the currency movement in the future. We have increased our hedging position from $470 million in March to $925 million to counter a stronger rupee in the future.”
TCS and Wipro, two other technology majors, are set to announce their results next week. “Wipro is expecting a bad quarter this time, while TCS could spring some surprise on strong volume growth. But there is no positive trigger for any of these large IT stocks in the short term,” said Nimesh Mistry of Man Financial, the brokerage division of Man Group Plc. He notes that Infosys comes up with strong numbers in the first two quarters. However, he said, there were no surprises in the quarter, adding “the net profit surged due to high interest income and forex hedge. The second quarter results are expected to be flat, if not bad.”
Tech analysts at domestic brokerages generally maintained that the lowered EPS guidance for this fiscal was the major factor behind the drop in Infosys shares. Shares of major top companies are trading at a significantly lower price to earnings multiple compared to many other shares in the 30-stock Sensex, India’s benchmark index.