Investors in IT stocks wait with bated breath for Q2 results

Anand Krishnamoorthy

Chennai, Oct 8: The second quarter results of information technology (IT) firms are eagerly awaited by the market. Nervous owners of IT stocks can take some comfort from the numbers shown in the table below. If IT companies maintain their performance during the second quarter, and the fiscal at the same level as the first quarter, they would post an average growth of 30 per cent per annum.

"The current prices of IT stocks viewed in the light of the past growth rates is very attractive. If the companies maintain their first quarter earning, the valuations would become extremely compelling," says an analyst with a local brokerage firm.

Leading IT companies such as Infosys and Wipro will post an annual growth of 29 per cent and 17 per cent (in IT services) per annum if they maintain the first quarter performance throughout the fiscal. Digital GlobalSoft will grow at 52 per cent and Satyam Computer at 35 per cent. Applying the same logic, Polaris Software will post only a 5.57 per cent growth.

The frontline software companies are currently available at a price earning ratio (P/E) of fast moving consumer goods companies. Wipro and Infosys trade at P/E of 26 and 33 respectively. At the estimated growth rates, will be available at P/Es of 20 and 24 respectively at current price levels.

A cross section of market participants are of the view that the September 11 attacks in the US would not have an effect on the second quarter earnings. "The projects to be executed during the end of the quarter would have tied-up well in advance," said an analyst. Also, frontline IT companies are expected to grow on a sequential quarter basis.

Among the factors that could affect the performance during the second quarter is the global telecom meltdown which has cut offshoring by telecom infrastructure companies. However, it is expected that the growth from telecom service firms will help grow the telecom segment of frontline IT companies. Also, companies could have faced billing rate pressures during the quarter.