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Technology stocks have been in an uptrend so far in the year 2013 supported by the sharp depreciation seen in rupee and signs of steady recovery in developed economic such as USA and Europe.

The BSE IT index has rallied a little over 40 per cent as compared to the 2.5 per cent gain in the BSE Sensex so far in 2013.

After posting strong earnings growth in the quarter ended June 30, analysts expect the trend to continue in the second quarter as well. The positive impact of rupee depreciation on earnings is expected to be witnessed in the next quarter as well.

Since the beginning of the current quarter, i.e. 2QFY2014, the Indian currency has tumbled over 11 per cent QoQ against the US dollar (USD) on an average basis. Rupee depreciation improves the competitiveness of Indian IT services companies.

“We expect Indian IT companies’ 2QFY2014 margins to benefit by more than 150 bps on account of the rupee’s recent fall,” Angel Broking said in a report. In the short term, the fall in the rupee would help all companies mitigate margin pressure due to salary hikes and higher visa costs, said the report.

IT firms, led by Infosys’s 0.09 % will kick off earnings season this week.

Infosys, the second largest exporter, is scheduled to reports its earnings for the quarter ended September 30 on Friday.

Ahead of the results, BNP Paribas BSE 0.00 % upgraded Infosys Ltd to “buy” from “hold” and has also raised its target price to Rs 3,550 from Rs 2,450 ahead of the company’s earnings.

“Despite Infosys’s recent struggles, the global brokerage firm believes that an uptick in demand and renewed focus on traditional service lines will result in revenue growth stabilising which may even lead to the stock getting re-rated in the near term,” BNP said in a note.

BNP adds there is improvement in the core markets of Infosys and it may raise its FY14 dollar revenue growth guidance in the second-quarter results.

Last week, technology stocks rallied after global investment bank raised the Indian IT sector’s dollar revenue growth to 15 percent by fiscal 2015 from 12 percent, citing stronger demand in the United States/European Union, rise in outsourcing deals and a better deal pipeline.

The investment bank also upgraded Tata Consultancy ServicesBSE 1.36 % to ‘BUY’ from ‘neutral’ for a target price of Rs 2300 from Rs 1700 earlier. Goldman Sachs also added Tech Mahindra LtdBSE 3.06 % to its conviction buy list.

For Infosys, the global investment bank has maintained its ‘neutral’ rating but has raised its target price to Rs 3100 from Rs 2750 earlier.

The investment bank says the rebound in European budget growth is particularly robust and coincides with improving macro indicators.

Recently, Standard Chartered in its strategy report mentioned downside risks to Sensex earnings and recommended liquidity driven rallies as an opportunity to realign portfolios towards IT stocks.

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