The Hindu Business Line : IT stocks jump on re-rating hopes

The IT stocks had a good run this week as the markets revised valuations upwards. This week, the 18-stock BSE IT Index outperformed the Sensex as well as BSE Midcap and BSE-500.

Its gain of 5.41 per cent was only next to 40-share BSE-TECk’s 5.58 per cent. However, on Friday it was the top achiever as the index improved by 3.69 per cent.

Rupee Appreciation

According to analysts, the decline in the valuations in November has perceptively been arrested this month. This is primarily because of rupee appreciation against dollar has been manageable particularly in December.

“The steep and sudden appreciation of July-September quarter had made IT companies wiser about efficient currency risk management. People have not only taken forward cover but also got into options contract to manage the risk of relative depreciation in rupee. Moreover, so far in this quarter, rupee has moved within a predictable and well covered range,” said an analyst with foreign brokerage.

According to Mr Gul Teckchandani, an equity strategist, IT stocks are seeing revaluations for various reasons. But according to him, the greater re-rating trigger lies in the fact that Indian IT companies, particularly the top ones, are cash rich. “Their war chest is ready. In the event of a shift in business matrix, whether caused by the US or Europe’s slowdown, or expansion into other geographies or picking assets abroad or here. That gives enormous flexibility in terms of future directing and maintaining future growth,” he explained.

An industry insider said that not only the top players made their margin growth largely immune to currency fluctuation, but the second and third rung companies have also got their acts .

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