Beware of This stock in long position

Infosys Technologies Ltd (INFY) Infosys was established in 1981 in Karnataka, India as Infosys Consultants Pvt Ltd by Mr. N R Narayana Murthy. The company, which public in 1992, is a global technology services firm that defines, designs, and delivers IT-enabled business solutions to clients across the globe in various industry segments. The company offers Finacle Advisor, a software product for the banking industry, and has a marketing and technical alliance with IBM, Intel, Microsoft, Oracle, and other large players. Infosys has eight subsidiaries in India and other countries.

INDUSTRY PROFILE

IT services: Indian IT services revenues were approximately $34 billion in 2009–10, for a CAGR of 20 percent from 2004–05 to 2009–10. During the same period, IT services exports, which accounted for 80 percent of revenues, grew at a CAGR of 22 percent to $27 billion in 2009–10. The industry is highly dependent on the U.S. and UK markets, which contributed to around 75 percent of export revenues. With IT services deriving a large portion of its revenues from exports, the sector’s profitability is highly correlated with foreign exchange movements. Thus, an appreciating rupee is a key risk factor. Also, as human resources is the main input in IT services, issues related to non-availability of skilled labor, attrition, and wage inflation also impact Indian IT players.

IT enabled services: ITeS is a term used to describe a range of IT-intensive processes and services, which include business process outsourcing (BPO) and knowledge process outsourcing (KPO), provided from a distant location and delivered over telecom networks. The Indian ITeS industry grew at a healthy CAGR of 30 percent from 2003–04 to 2008–09, driven by demand from developed economies like the U.S. and the UK. However, y-o-y revenue growth significantly declined to 7 percent in 2009–10 and was estimated at $ 14.6 billion. The slowdown was a result of weak demand from key markets, protectionist measures by developed countries, and delays in decision-making cycles during the downturn. The revival in the global economy, along with the continuing maturity of offshore global delivery models, process innovation, and inherent need of clients to reduce costs are expected to continue to propel export growth.

KEY HIGHLIGHTS

Fully integrated IT solutions provider with presence in several verticals: Infosys is into business and technology consulting, application services, systems integration, product engineering, custom software development, maintenance, re-engineering, independent testing and validation services, information technology (IT) infrastructure services, and business process outsourcing (BPO). The company provides services to diversified industry segments such as financial services, manufacturing, telecom, retail, airlines, education, healthcare, life sciences, and others. During FY10, revenues from key industry were as follows: financial services ~34%, manufacturing ~20%, telecom ~16%, retail ~13%, and others ~17%. The company’s presence in different industry segments mitigates the risk of a downturn in any one industry segment.

Strong relationship with clients across the globe: Infosys has wide reach across the globe. During FY10, 97.3% of revenues were derived from existing clients, which implies that the company creates a high level of satisfaction through their products and services. Revenues based on geography of clients were as follows: North America ~65.8%, Europe ~23%, India ~1.2%, and rest of the world ~10%. During FY10, the company added 141 new clients and its total client base stood at 575. In FY10, Infosys expanded into emerging markets and commenced a new consulting and system integration practice in Australia and New Zealand. The company also started the Latin American Development Center in Monterrey, Mexico, offering global and Latin American clients a range of IT services, including business and IT consulting, BPO, packaged solutions implementation, and infrastructure management. The company added 2.86 million square feet (msf) of new infrastructure space and 10 new marketing offices in FY10.

KEY RISKS

• Anti-outsourcing legislation
• Weak economies in key markets such as the U.S. and Europe
• High attrition rate
• Foreign exchange fluctuations; in FY10, ~98.7% of income was derived from overseas operations.

Stock’s Technical Outlook

Technical Analysis answers the hidden story of company’s fundamentals (when to buy / sell).

Short/ Medium term (within one year). Short sell INFY at current market price of Rs.2,607 for a minimum target of Rs.1,800-1,500 in eight to twelve months. Stop-loss for short sell will be at Rs.2,950 levels. All levels are cash market.

Economic Outlook

The Indian economy has begun its correction and so far has come down by nearly 18% from the high in 2010–2011. This pre-identified correction is likely to continue until the Sensex hits around 13,200. Many stocks appear to be value buys even at current market prices; therefore, only we are generating buy reports. Remember that not everything rises at the same time, and not everything falls at the same time.

(Written in Oct 2010) “The Indian Economy is definitely growing but is it growing at a pace faster than that of the Index? If you have a look at EPS of major 50 stocks (for example, the NIFTY 50 stocks), you will find that it was at a high of 237 in January 2008 and was marginally up again to 240 in October 2010. It hit a low of 210 in April 2009. In the short term, we expect the Sensex to hit a marginally new high (above 21207) to around 21700, and then a good correction is expected. This correction (if it comes) will be a lifetime opportunity for investors to put their hard-earned money into the Indian markets and have it multiply in another five years. We expect the Sensex to hit 45–50k by 2016.”

Links & source of data.                                               http://INFOSYS.com                             &                    www.nseindia.com

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