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| Throughout the current rally, information technology (IT) stocks have underperformed the broad market. In September, the BSE IT index almost caught up with the Sensex, but lately the gap has been widening again. |
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| Future direction of IT stocks, needless to say, will be determined by the upcoming September quarter results. And most analysts are optimistic about them, saying that volume growth continues to be robust and that pressure on pricing has come down. |
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| This is supported by statements given by the management of the top companies such as Wipro, which has said that margins of its global IT services division would improve in the September quarter. But there are even higher expectations that companies may revise their full-year guidance, thanks to high volume growth in the first half of the year. |
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| This could certainly be a trigger for IT stocks to catch up with the broad market. In case they report decent results, but do not revise guidance upwards, the underperformance may continue. |
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| But in the (unlikely) case that IT results disappoint, there is sure to be a selloff, since most of the stocks enjoy rather rich valuations. Coming back to the results expectations, volume growth will most likely continue to be strong given the healthy trend in recruitment. |
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| And although pressure on margins is expected to be much lower given that the pricing situation has stabilised, there could be some other factors that could keep margin growth under check. |
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| Thankfully, most IT companies have increased the amount of forward cover taken against their dollar exposures, especially since the rupee appreciated sharply last quarter. But a little impact is still expected, and apart from that some companies would have effected salary increases for the year, which would also impact margins. |
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| On the whole, though, margins are estimated to be either flat or decline at a much lower rate compared with the previous quarters. |
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| Vijaya Bank |
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Bank stocks have shown considerable appreciation amidst the broad bull run in the stock markets, and Vijaya Bank has outperformed most banks. Compared to a return of around 18 per cent for the banking index since July, Vijaya Bank
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