The Hindu Business Line : US sub-prime fears continue to grip infotech stocks

Mumbai, Aug. 17 Concerns of the US sub-prime fiasco impacting the sector sent Information technology stocks on a tailspin for the second consecutive day.

While counters of i-flex, Mastek, Patni and Financial Technologies depreciated anywhere between 4 and 6 per cent, the biggies of the pack including TCS and Satyam lost ground between 2 and 4 per cent on the BSE today.

The Infosys shares touched an intra-day low of Rs 1,745 before ending up at Rs 1,854.8, down 2.91 per cent, from its previous close of Rs 1,910.45. The shares registered a trading volume of 8.23 lakh and its two weeks average is at 3.83 lakh.

Negative Sentiments

The benchmark BSE IT index hit an intra-day low of 4356.76 before recovering to end the day at 4,500.4, 2.95 per cent lower than the previous day’s close. Of the 12 scrip’s comprising the index, 8 declined and 4 advanced.

In spite of the rupee depreciating against the dollar in the past few weeks, analysts believe that the fall was imminent. “Even though there is no direct correlation between the sub-prime crisis and the IT industry, negative sentiments globally have brought the IT sector down,” according to Mr Lalit Thakker, Director-Research, Angel Broking.

The IT sector is witnessing hectic selling activity from FIIs, owing to negative cues worldwide.

“Generally FIIs have strong positions in IT companies owing to expectations of a higher return on investment. However, in order to cover loses from ‘sub-prime’ prone economies, they are liquidating their positions,” said a senior official from a Mumbai-based asset management firm.

Significant Slowdown

FIIs have withdrawn about Rs 1,070 crore between August 10 and 14.

On Thursday, FIIs pulled out nearly Rs 3,108.45 crore when the BSE Sensex tanked by 643 points.

Today, they were net sellers to the tune of Rs 3,535.76 crore, as per data available on the NSE.

“The sub-prime crisis could have a long-term impact on Indian IT companies as it could lead to a reduction in IT spending,” said an analyst.

A significant slowdown in demand due to a slowdown in the US economy or global economies generally means that pricing environment would get tighter.

Moreover, if unconfirmed reports about other worldwide banks being affected by the crisis are true, IT companies — who serve many large banks globally — will be hit, said the analyst.

Even though companies are not admitting it, there are concerns on the fund management side, prompting investors to liquidate risky positions, the analyst added.

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Sub-prime spectre shaves 642 points off shaky Sensex
FIIs resort to aggressive selling; domestic funds do the defence act

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