IT index outperforms Sensex, gains 1% on BSE

Wipro, TCS among key gainers in the space

Markets traded on a flat note this afternoon with selling pressure visible in FMCG and metal space. However, the BSE IT index managed to gain 0.9% or 58 points at 6,583. Meanwhile, the benchmark Sensex was up 25 points at 18,252.

The IT index had dropped 5.5% in since the beginning of the month to end Tuesday trades at 6,525. Software shares declined due to the rupee's rise. Local software companies benefit from a weaker rupee as their earnings are mainly from software services to the U.S. and Europe.

However, accoding to analysts the recent fall was overdone and markets are recovering from that fall now.

The rupee recovered by 13 paise to 54.45 against the American currency in the late morning trade on fresh selling of dollars by banks on the back of lower dollar in the overseas market. Weakness of dollar in the overseas market mainly boosted the rupee value against the dollar, according to reports.

According to the research firm Nirmal Bang, the dollar has good intraday support at 54.12 and resistance is at 54.65. Expected intraday range is 54.30-54.65.

Moreover, IT major, Infosys comes out with its yearly financial results on Friday. Navneet Daga, derivative analyst, KR Choksey Securities, feels that the IT pack had seen some signs of unwinding and distribution pattern on upside. A cautious approach has been recommended ahead of results for the IT pack, especially Infy and HCL as they show signs of long unwinding.

The growth differential between Infosys, whose results are out on Friday, and rival Tata Consultancy Services (TCS), is expected to narrow in the new financial year. While the latter may still retain its lead, the valuation discount of Infosys against TCS is expected to fall, say experts.

"I will not comment on Wipro as it’s a whole new entity now but the other IT companies such as Tata Consultancy Services have a major support at Rs 1,440-1,475 and we see a maximum downside of Rs 1,440. Therefore we have not given up on TCS. Infosys is like a joker in the pan. We see the stock inching down with a support at Rs 2,720," said Anil Manghnani, Chairman, Modern Shares & Stock Brokers.

From the IT pack, Wipro has surged 1.7% to Rs 400.50. TCS is up 1.5%, followed by Tech Mahindra, Infosys, Satyam Computers and Financial Technologies. Hexaware Technologies is the sole stock in the negative zone - down 0.2% at Rs 91.50.

"The IT stocks have seen good run up in last couple of months on market volatility and preferences towards defensive sectors. Therefore any further appreciation in stock price should be supported by improvement in fundamentals company specific.  Key pointers to look for would be the guidance by Infosys (which was a surprise in last quarter) as Nasscom has 10% growth guidance for FY14. Other things being the improvement in US and Europe regions, commentary on discretionary spend, update on bidding on large deals, pricing competitiveness and outlook on wage hike and attrition rate are the parameters to be looked for," said A K Prabhakar, Senior Vice President - Equity Research.