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Tech shares rise as global majors spur spending hopes

Tech shares rise as global majors spur spending hopes
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First Published: Thu, Mar 31 2011. 03 26 PM IST
Mumbai/Bangalore: Shares of India’s leading IT firms are rallying on hopes that upbeat results and outlooks last week from global technology majors Oracle Corp and Accenture bode well for a resurgence in tech spending.
The IT sector index has jumped nearly 8% since results from the two US-based giants fuelled hopes of a global resurgence in technology spending and added to expectations for a pickup in pricing.
“Overall, it is a positive signal for the Indian IT sector,” said Rohit Anand, senior analyst with PINC Research, who expects the dollar revenue of India’s top three IT firms to grow in the range of 25-30% in the fiscal year ending March 2012.
“New license sales have risen (at Oracle). That means people are looking at more discretionary spending, they are thinking of more than just merely cost cutting initiatives,” he added.
Analysts estimate revenue growth at the top three -- Tata Consultancy Services Ltd , Infosys Technologies Ltd and Wipro Ltd -- will rise by roughly 20-25% in the FY12, faster than the overall sector, driven by rising demand and price hikes.
“A continued strong uptake in IT services demand due to improving economic growth in the US benefits Indian IT companies like TCS, Infosys and Wipro,” said Taina Erajuuri, fund manager with Helsinki-based FIM Asset Management.
“Pricing is expected (to) pick up this year, which augurs well for Indian IT companies,” she said.
This week, TCS chief executive N. Chandrasekaran said he expects to “definitely” see an uptick in pricing in the fiscal year that starts 1 April, after prices rose in the October-December period for the first time in six quarters.
Last week, IT outsourcing and consulting firm Accenture raised its outlook for the full year, while Oracle forecast a 4 to 14% rise in new software sales for the fiscal fourth quarter after reporting a 29% jump in new software license sales for its third quarter.
‘Richly Valued’
According to StarMine SmartEstimates, Infosys, TCS and Wipro trade at 21.2, 21.7 and 18.9 times 12-month forward earnings respectively, a tad higher than the five-year average, analysts said.
By comparison, global rivals Accenture and Capgemini trade at 15.5 and 15.1 times forward earnings respectively.
“(Indian) IT stocks are richly valued, but they are well-positioned to command these premium valuations, due to the history of performance deliveries,” said Rakesh Rawal, head of private wealth management at brokerage Anand Rathi.
Rawal, who manages $1 billion of funds for wealthy individuals, holds the top three IT stocks for his clients.
Moves by Infosys and TCS to focus on higher value work such as consulting are also positive, investors said.
According to StarMine, out of 46 analysts tracking Infosys, 25 had a strong buy or buy with 5 recommending a sell or a strong sell. The rest had a hold.
The sector index is down 5.9% since the start of the year to 30 March, in line with the larger market . TCS, Infosys and Wipro shed 1.2%, nearly 8%, and 3.4% respectively.
TCS shares are just about Rs40 away from their record high of Rs1,221, scaled in January.
Investors will watch out for the guidance from Indian technology companies for the next fiscal year when Infosys kicks off earnings season on 15 April.
Brokerage Motilal Oswal issued a report this week on Infosys reiterating its buy rating and a price target of Rs3,664 -- or nearly 16% above Wednesday’s closing price.
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First Published: Thu, Mar 31 2011. 03 26 PM IST
More Topics: Tech Shares | Oracle | Accenture | TCS | Wipro |