IT Sector stocks – an update

Despite the global economic slowdown, or perhaps because of it, IT sector companies have been relative outperformers in the Indian stock market. Devaluation of the Rupee against the US Dollar has been an added boon.

Large-cap IT stocks have done particularly well. Mid-cap IT stocks haven’t been far behind. But small-cap stocks in general have faced a rough time. In the IT sector, retaining talent is a challenge. That is where smaller companies are at a disadvantage.

IT services remain the major revenue earner. Consulting business is yet to catch on in a big way. With increasing visa impediments – particularly in the USA - the larger companies have focussed on offshore and India businesses. Software product development activity is mostly limited to MNCs.

HCL Tech

The stock has gained more than 200% since the bull run began back in Aug ‘12. Daily technical indicators have corrected from overbought conditions but showing negative divergences by failing to touch new highs with the stock price. There are rumours of a stake sale. May be a good idea to take some profits home.

Infosys

Lack of leadership and so-so performance kept the stock in a sideways range till Narayanamurthy took back the reins. Lot of top-level executive departures have put a question mark on succession issues. The market is obviously encouraged by an improvement in performance.

KPIT Cummins

After an 8 months bear phase (from Sep ‘12 to Apr ‘13), the stock is back in a bull market. Q3 result disappointed the market, causing a sharp fall. Can be added on dips.

Mindtree

The stock is in a terrific bull run, gaining 300% in the past 2 years. Founder and CEO Ashok Soota’s departure has been long forgotten. The stock is looking overbought and ripe for a correction. Dips can be used to add.

MPhasis

This stock has gone nowhere in the past 2 years. Likely drop in business from parent HP and possibility of sale of HP’s entire stake has kept the stock price in a sideways range. Avoid.

Oracle Financials

The stock price is undergoing a correction after touching 3400 in Jan ‘14 – its previous top was also 3400 touched in Jan ‘13. If the stock price falls below the support/resistance level of 2990, the possibility of a bearish double-top pattern may open up.

Tata Elxsi

After a prolonged sideways consolidation that tested the patience of most investors, the stock has broken out sharply and tripled in 5 months. Daily technical indicators are looking overbought. Part profits can be booked.

TCS

The ‘big daddy’ of IT companies has been in a steady bull market with frequent corrections that have kept the chart ‘healthy’. This is a stock that every investor should have in their portfolio. All dips are adding opportunities.

Tech Mahindra

It is a great credit of the M&M management that Satyam Computers has been so well integrated with the company, turning Tech Mahindra’s stock into an outperformer with gains of more than 200% in 2 years. Add on dips.

Wipro

Even after sorting out management issues, Wipro’s performance has been tepid. The stock has returned to a bull market, but gains have been moderate. Switch.

Related Post

IT Sector stocks – time to change the game plan?

IT Sector stocks – time to change the game plan?

Recently, Sabeer Bhatia (of Hotmail fame) was in Calcutta/Kolkata for a little R&R-cum-business. (December and January are the two most pleasant months in the city, and attracts NRIs by the hordes.) Along with spending quality time with his in-laws and playing golf, Sri Bhatia indulged in promoting his latest venture (JaxtrSMS - free SMS through the Internet), hobnobbing with the Chief Minister and giving press interviews and speeches at IT industry gatherings.

One of the important points he raised was that Indian IT companies are over-dependent on selling services through hiring out consultants to overseas clients. Successful Indian software products are conspicuous by their absence. Apparently, JaxtrSMS has been totally designed and created by Indian software engineers sitting in India. It is time that other companies follow his lead.

Certainly the 10 chart patterns of Indian IT companies attached below indicate that Sabeer Bhatia may be right – it is time to change the game plan from services to products if the Indian IT sector wishes to retain its position in the global pecking order. Already, Philippines and East European countries are taking away IT-enabled service contracts from India.

HCL Tech

HCL Tech formed a double-top reversal pattern during Apr ‘11 to Jul ‘11 and dropped sharply into a bear market. The chart is looking weak and the price can dip to test the Aug ‘11 low. Switch to Wipro.

Infosys

The recent changes in management seem to have robbed Infosys of whatever little aggression it had. The recent attempts at getting back into a bull market have fizzled out. The stock is looking oversold, and can bounce up towards the blue up-trend line. That will be a selling opportunity.

KPIT Cummins

After touching a peak in Jul ‘11, KPIT Cummins is making a bearish pattern of lower tops and lower bottoms, and is in a bear market. The chart is looking weak, and the stock can test and break the Dec ‘11 low. Sell.

Mindtree

Ashok Soota’s departure from the helm of affairs hurt the market sentiment badly. The Mindtree stock is trying to extricate itself from a strong bear grip – with some degree of success. The stock is making a bullish rounding bottom pattern, and can be added on dips (but with strict stop-loss).

MPhasis

Not sure what MPhasis is doing currently, but the chart pattern shows that it is not doing it well. The stock is deep inside a bear market and likely to fall further. Avoid.

Oracle Financials

The stock of Oracle Financials peaked out in Jul ‘11 by making a small double-top reversal pattern, and is in a bear market. The stock is expected to resume its fall soon as both the RSI and the slow stochastic are showing overbought conditions. Sell.

Tata Elxsi

Tata Elxsi seems to have lost its way, and is sliding in a bear market. The current rally has been on falling volumes and both the RSI and the slow stochastic are looking overbought. Avoid.

TCS

Despite its gap-down fall below the blue up-trend line – probably in sympathy with the Infosys stock – TCS is technically in a bull market. Both the RSI and the slow stochastic are looking oversold, and a pullback towards the blue trend line is on the cards. Use the opportunity to book partial profits. Q3 results may not be as bad as some are expecting.

Tech Mahindra

Tech Mahindra is another stock that peaked out in Jul ‘11 and quickly slipped into a bear market. The next leg of the down move may start soon. Get out.

Wipro

Wipro has recovered very smartly after a short spell in a bear market. The ‘golden cross’ of the 50 day EMA above the 200 day EMA will confirm a bull market. Change of CEO has brought in new direction and aggressiveness that was lacking earlier. Use dips to buy.

Related Post

In which IT Sector stocks should you invest?

In which IT Sector stocks should you invest?

The IT Sector had been one of the star performers in 2010. With the US and Eurozone economies showing signs of recovery, it is expected that the sector will perform well in 2011 also. A performing sector doesn’t mean all the companies in the sector are worth investing in. Some stocks are leaders; some are laggards. Some are just not getting anywhere.

Here are the chart patterns of 10 IT sector stocks – including the four big guys and a few mid-caps. With demand for experienced manpower on the rise, the problem of attrition is causing concern. The big guys with their geographically spread out operations in different verticals is better able to manage attrition than the smaller players.

TCS

TCS is the jewel in the crown of the IT sector, and has been in a raging bull market, touching new highs on a regular basis. After a decent correction during Mar-May ‘10, when the stock almost fell to the 200 day EMA, the stock touched a lower bottom, but the RSI made a bullish higher bottom. For the past month, it has been in a consolidation mode with an upward bias. The stock is at an all-time high, so caution is advised. The RSI and slow stochastic are showing negative divergences. Hold. Add on a slightly deeper correction.

Infosys

The Infosys stock is also in a strong bull market, touching higher tops and bottoms for the past 12 months. The correction during Apr-May ‘10 touched a higher bottom. Both the RSI and slow stochastic have fallen sharply from their overbought zones. The correction may continue for a while longer. Hold, and add the dips.

Wipro

Wipro is also in a bull market, but the Oct ‘10 high has not been breached yet. The stock is showing some weakness near its previous high, and a bearish double-top pattern may be forming. Wipro has never quite been in the same league as TCS and Infosys. It is reflected in the stock’s performance. Book partial profits.

HCL Tech

HCL was an established company when Infosys first appeared on the scene. Somehow, their head-start in the small computer manufacturing and marketing field could not be leveraged into leadership in the software services field. That doesn’t mean that their stock is doing badly. It is in a bull market, and has given decent returns in the past 12 months. Can be added on dips.

Oracle Financials

The Oracle name hasn’t changed the fortunes of the original iFlex. Though the stock is technically in a bull market (trading above a rising 200 day EMA), it has traded in a sideways range for the past year and has given negative returns to shareholders. Switch.

MPhasis

Mphasis hit a peak in Feb ‘10, fell well below the 200 day EMA, and has since been oscillating around its long-term moving average. The stock has given negative returns to its shareholders in the past year. Switch.

Tech Mahindra

Tech Mahindra is trading below its falling 200 day EMA, making lower tops and bottoms and is technically in a bear market. The British Telecom connection has broken and the Satyam amalgamation will be a heavy cross for investors to bear. Avoid.

Mindtree

The Mindtree stock is not going anywhere. It is making an effort to move above its 200 day EMA, but is trading within a bearish pattern of lower tops and bottoms. Not quite as bearish as Tech Mahindra, but an ‘avoid’.

KPIT Cummins

The KPIT Cummins stock dropped like a stone below its 200 day EMA back in May ‘10. It recovered sharply to double in value in Aug ‘10. It has been in a down trend ever since, and is about to drop into a bear market. Sell.

Tata Elxsi

Tata Elxsi touched a high-volume peak in Mar ‘10, and has been oscillating around its 100 day EMA since then. Shareholders have got no returns. The stock is technically in a bull market, but the chart pattern does not inspire any confidence. Hold.

Related Posts

Should you invest in Telecom Sector stocks?

Will the H1/L1 US visa restrictions 'news' affect the IT sector?

A couple of months back, I had written a post about how to use financial news. Four categories of 'news' were discussed - good, great, bad and worse. Some suggestions about how to deal with such news were given.

What if there is a fifth category? Some item that appears in the pink papers or business channels as 'news' and causes some turmoil in the stock markets - but later turns out to be a misinterpretation? It wasn't really 'news'?

It is difficult to take any action till you receive further clarifications. Or, you may have an 'insider' in the industry or sector who can separate the wheat form the chaff and go to the core issue to advise you.

The recent 'news' about the H1/L1 visa restrictions for temporary non-immigrant workers in the USA is a case in point. The business channels went to town about it, asking leading members of the IT industry how these restrictions will affect their top lines and bottom lines.

Some retail investors dumped Infosys, TCS and other IT stocks. Some even stated that the leading IT sector stocks had become 'fundamentally weak'. The 'smart money' lapped up the stocks.

Any one who has spent a few years in the IT industry and has worked in the USA would take such 'news' in their stride. Because (s)he would know that similar 'news' keeps popping up every so often only to dissolve without a trace.

Why? Because the visa restriction 'news' was only a proposal by a couple of senators - pandering to the popular misconception that most of USA's unemployment problems have been caused by jobs being outsourced to India.

It takes a very long while - some times, forever - for such restrictive proposals to become a law. The proposal needs to be tabled and passed in the US Congress and the Senate. There will be a strong Indian-American lobby that will be working against it.

Even if the proposal gets through both houses, it is likely that there will be several amendments made to the original draft proposal. Each amendment will take its own sweet time to go through.

The US President has to sign the revised proposal to turn it into a 'law'. He has the authority to turn it down, or - you guessed it - seek more amendments. Many such proposals never get to become a law. Even if it does, most of the severe restrictions are likely to get diluted.

At the end of it all, should the visa restrictions become a law, it will not take effect retrospectively. Meaning, existing H1/L1 visa holders will not be affected. Only new visa applications made after the law comes into effect will face the restrictions.

Who might get affected the most in the IT sector? It will be the small body-shoppers whose business model is to hire out programmers to different US companies.

Also affected will be large US IT companies like Microsoft, Oracle, Cisco who employ significant numbers of H1/L1 software personnel from India. They will face difficulty in finding new employees from the US job market. So they will probably be lobbying the US government to veto such a restrictive proposal.

Infosys, TCS, Wipro have globally dispersed businesses, with a large portion of the work done 'offshore' in India. They will be inconvenienced, but the effect on their top line and bottom line will be very little.