IT stocks seen range-bound

Key technology stocks are likely to remain rangebound next week ahead of the earnings announcements and guidance for 2005-06 (April-March) due early next month, brokers and analysts said on Thursday.

"Key stocks may remain broadly at current levels until key companies detail their guidance for the next fiscal," said an analyst with a large domestic fund.

He noted that a key driver would be the earnings guidance from software bellwether Infosys Technologies due to be announced along with its fourth quarter earnings on Apr. 14.

In a note to clients last week, investment bank UBS Warburg said based on its analysis of the macro environment, the 2005-06 guidance from Infosys should reflect continuation of strong offshore demand into the next year and pricing improvement.

UBS expects Infosys to guide for a 30-35 per cent growth (in US dollar terms) in revenue and earnings growth in the next financial year. Also, UBS expects prices to rise 2.5 per cent next year.

The investment bank noted that any correction, triggered by a conservative guidance, could be a potential buying opportunity for investors.

There is market speculation that the earnings forecasts could be significantly higher with some market players expecting the guidance to be over 40 per cent.

There are expectations that the strong demand for outsourcing services this year would continue in the next year too.

In a note to clients Tuesday, Smith Barney Citigroup said its "feedback suggests that demand could accelerate in the next few quarters as contracts delayed due to the US election are signed and ramped up."

"We knew the demand should be strong, and we were not disappointed. However, what we were not expecting was the comment by some people we met that demand was accelerating," Smith Barney analyst said.

Apart from expanding their relationship with existing clients, top-tier Indian companies are seeing an increasing willingness from overseas customers to outsource work from large verticals like transportation, energy, healthcare, manufacturing, and retail. This, in turn, is expected to expand the size of the available market for local players.

In its note, UBS said Infosys is currently witnessing very strong ramp-ups within financial services and retail verticals, while rest of the verticals is likely to grow in line with the company average.

Analysts said concerns over wage inflation appear to have receded among top-tier companies.

The wage inflation applies mainly to the actively sought-after mid-tier workers or those with three to seven years of experience.

"Most companies expected that once the hiring by all the captive organisations abates and the cadre of employees hired in the past couple of years starts maturing in the next two to three years""wage inflation is an issue that can be tackled," Smith Barney Citigroup said.