IT sector update - Geojit BNP Paribas Financial Services

- Outlook on the IT sector is upgraded to 'neutral' from the earlier reduced rating.

- Fears that the difficult macro environment could lead to at least two - three quarters of revenue weakness have more or less played out. Currently, it seems that a modest recovery is around the corner.

- Persistent BFSI (banking, financial services, insurance) demand weakness and the Europe situation prevent any more positive view on the sector.

- It seems that there would be disparity between companies' growth rates as the industry's deal flow is not reached ideal levels although there is marginal improvement.

- For the medium term, the bigger stock driver would be margin performance.

- Wipro has been upgraded to 'buy' and the stock is our top pick now in the IT sector. Concerns on Wipro are cyclical and the structural ones have almost been addressed. It seems that the company is best placed to counter industry - wide margin pressure, if it can correct its inefficient cost structure.

- Infosys and TCS are upgraded to 'hold' from 'reduce' rating.

- 'Reduce' rating is maintained on HCL Tech.

- Maintain 'hold' rating on Mphasis, Tech Mahindra and Satyam.

- Ratings on MindTree and Persistent Systems have been upgraded to 'buy' from 'reduce'. These two have credible long term strategies and appear to be the significant beneficiaries from the weakening rupee.

- Infosys is upgraded to 'hold' on cheap valuations and the management's strategy to pursue higher margin projects will need a favorable environment to work.

- TCS appears to be holding on to demand better than its peers but its high exposure to financial services sector remains a concern. In the medium term, the company is expected to face margin pressure.

Source : Equity Bulls

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