Infosys turns the tide for technology counters

Cheered by better than expected quarterly numbers from infotech bellwether Infosys, most technology stocks ended higher today. Since Infosys usually sets the tone for the performance of the sector, one could expect good numbers from other tech companies as well, said a dealer.

In today's trade, Infosys stock led the pack of gainers in the technology space. The stock ended at Rs 2684, up 2.34 per cent. On the BSE, the stock was the highest traded clocking a turnover of over Rs 219 crore or 8.19 lakh shares.

The BSE IT index was up 1.66 per cent (53.72 points). To add to the delight, TCS also beat analyst expectations. However, the company announced results after market hours. Tata Consultancy Services gained 1.28 per cent to end at 1467.90 on volumes of 4.80 lakh shares.

Despite the strong quarterly numbers, some mid-cap IT stocks were in the red. The biggest loser was i-Gate Global which was down 8.27 per cent as the company posted disappointing numbers. The company's revenues were up only 5.6 per cent quarter-on-quarter to Rs 155.77 crore. Net profits saw a near three-fold jump from Rs 1.42 crore to Rs 5.62 crore.

Among the other prominent losers were Infotech Enterprises (-4.6 per cent). Geometric Software (-3.72 per cent), Mascon Global (3.34 per cent), Aztec Software (-3.24 per cent), CMC Ltd. (-2.978 (per cent), MRO-Tek (-2.59 per cent).

Even in a weak market, technology companies have been holding up well with the rupee losing ground. While a weakening currency is a positive for software services companies which derive a bulk of their revenues in dollars, the gains may be muted as most companies hedge their exposure limiting the gains from rupee depreciation, an analyst said.

According to their revised guidance given by the Infosys management, the company expects a revenue growth of 31 per cent in fiscal 2006 as compared to 26-27 per cent growth that they had anticipated in the previous quarter.

"Infosys has surprised on the positive side", said Rahul Rege, head-sales and business development at Sharekhan. The topline growth was higher than expectation. Going forward the company expects the margins to remain in a narrow range and topline to grow at 6.5 to 6.9 per cent sequentially. Further, the recent rupee depreciation will only help the company to match analyst expectations with ease," says Rege.

The company is expecting its EPS to be in the range of Rs 89 and Rs 89.40 as compared to Rs 84.70 that they had anticipated in the previous quarter. "The company has beaten the street expectations in general and have also surpassed our expectations this quarter,¿ said Nilesh Shah, vice president, Edelweiss Capital.

Even as the future looks bright for the infoetch biggies with the global delivery model getting more acceptance in the western world, the going may not be easy for the small players going forward.

Analysts feel that going forward growth could be increasing polarised with the bigger ones growing steadily and the smaller ones with no real niche struggling to be in business. Companies like Infosys, Wirpo and TCS have the ability to scale up their business and are well prepared to handle growth.

With growing competition, both among domestic as well as multinational players, which are mimicking the off-shoring model, not all players may be able to deliver growth. "Size and scale is now a pre-requisite for growth and mid-caps will find it tough," said an analyst with a foreign broking firm.

Mid and small-sized companies will have to fight harder for their space and find niche areas to be successful, he added.