ABN deal pumps up tech stocks

Top tier infotech companies have been witnessing a bull run on the bourses on the back of positive industry developments. On Thursday, top software service exporters Tata Consultancy Services (TCS), Infosys Technologies and Patni Computers bagged a part of the outsourcing order of ABN Amro Bank.

While Infosys gained 2 per cent to close at Rs 2,427 on the BSE, TCS rose 1.3 per cent to end the day at Rs 1425. The PCS stock also gained 0.85 per cent to close at Rs 429.35.

It is learnt that the IT application, maintenance and development contracts awarded by ABN Amro to these companies amount to about $2 billion.

Infosys alone has bagged a contract of $140 million, which can go up to $250 million over the next five years. This is the single-largest multi-year contract ever won by Infosys.

TCS expects revenues of over ¤ 200 million over next five years from the contract. The order win had its impact on other IT stocks as well: Wipro was up 1.40 per cent at Rs 370, while Satyam was up 0.70 per cent at Rs 533.

Analysts opine that the outlook is very positive on the infotech sector, especially on the outsourcing front and the new order wins are a clear indication of the sustainability of their business models.

An IT sector analyst with a Mumbai-based brokerage firm said, "We see strong growth for offshore services offered by Indian companies such as Infosys, TCS, Wipro and Satyam. Offshoring is a mega trend now and will grow at an increasing pace."

Indian software exports stand at $12-13 billion per annum. The growth potential in the BPO segment is considered to be even bigger as it constitutes only 1.6 per cent of the total IT revenues.

According to Shekhar Singh, vice-president, ICICI Securities, "Indian companies are successfully expanding the offshoring model to many new service lines. Thus, we expect more big contracts such as the one from ABN Amro, going forward."

The TCS management had noted that that the ABN Amro deal was a part of its strategy to have more clients outside the US. The company's operations grew by 60 per cent last year in Europe.

At the same time, there are some concerns about the appreciation in the rupee, which may squeeze the margins of the IT exporters. But analysts say that off late the rupee has depreciated from 43.6 to 44.1. The trend if it continues augurs well for these companies, say analysts.

The sentiments at the IT counters have been upbeat recently. Infosys has appreciated by 55.8 per cent over the past year to touch a 52-week high of Rs 2,454 on Wednesday.

The stock has advanced by 6.9 per cent in the past week alone. TCS, has appreciated by 13.8 per cent over one month and by 7.8 per cent over one week.