Markets are going throug a rough patch right now which is adveresly affecting the IT pack. But once when markets find their feet and stabilise can IT be one of the options to park your money in?

The sector has been an underperformer since the past few months.The first quarter results have been subdued for most IT companies, this was expected on account of 7% rupee appreciation against the dollar. he stocks have underperformed the benchmark indices in the last few months.

But when we look at operational performance of the IT biggies like Infosys, TCS, Satyam and Wipro it has been strong and largely inline with street expectations. However, the strength has not been enough to mitigate rupee appreciation and wage inflation for most of the companies.

Only TCS saw its EBIDTA margins stable at 22.7%, Satyam could arrest the fall at 22.4% down 64 bps. Wipro’s margins were down 199 bps at 19.4%. Infosys margins were at 28.7% down 300 bps.

If we look at other metrices like pricing, utilization, billing rates, volume growth, the companies have tried to inch up on these factors to nullify the rupee impact and have succeeded to some extent. For instance Satyam saw the highest volume growth of 9.5%, followed by TCS at 7.5%, Infosys a bit below at 6.9% and Wipro trailing behind at 6.5%.

On pricing front, TCS was up by 0.6%, tha same was 1% for Infosys and 1.3% for Satyam. Billing rates saw upward movement up 1% for Infosys and 1.1% for TCS.

Utilisation rates have also moved up. TCS saw utilisation of 76%, Wipro 74.5%, Infosys 70.4%. The companies are looking inch up these numbers further. So all this translates into healthy operational performance.

On the -ve side attrition remains a concern for these companies. Wipro's attrition rate at 20% and Infosys at 13.7%, TCS has a lowest in the industry at 11.5%. Satyam saw its attrition coming down from 15.7% to 14.9%.

Going ahead the demand and pricing environment is seen positive and new contracts are seen coming at 3%-5% higher levels.

But the most important question is whether concerns regarding rupee appreciatopn and wage inflation are discounted in the current market price of these stocks and should one enter them at current levels?

Brokers are are largely positive onthe long term prospects of these stocks. According to them the stocks are expected to be in a narrow range for the next few months. But brokerage houses continue to remain positive on these stocks on PE valuation basis.

Infosys has given a guidance of Rs 79 for FY08 earnings. Analysts feel that the estimates are conservative and they expect it to be around Rs 82. On these earning numbers, Infosys is trading below Rs 1900 levels currently, and at a PE of 24 times its FY08E.

TCS and Satyam are interestingly placed in PE valuation terms. Satyam’s EPS for FY08 is expected to be at Rs 24 and its CMP is at Rs 460. So it is trading at PE of over 20 times. TCS is expected to post an EPS of Rs 51 to 52, at its CMP of Rs 1100 the stock trades at a PE of 22.5 times.

TCS has narrowed the PE discount gap at which it used to trade against Infosys. It trades with at 8% discount from the earlier discount of 15%.

Thus it can be said that if rupee stabilizes at current levels, the biggies with the help of huge hedged dollar position will attract buying interest again going ahead.