The Hindu Business Line : IT stocks make sharp recovery on resurgent buying interest

Kolkata, Dec. 24 Information technology stocks have been making sharp recovery on resurgent buying interest in the last few days. On Monday, all the top counters posted handsome gains between 6 per cent and 9 per cent. Wipro was the highest gainer (up 8.86 per cent), followed by Infosys (6.63 per cent), Satyam (6.28 per cent) and TCS (6.07 per cent). Incidentally, TCS and Infosys had seen their year’s low about a month-ago on November 22. Satyam witnessed its 52-week low as late as on December 17. Wipro had dipped to its lowest point of the year on September 21.

According to analysts, this recent trend reflects waning of apprehension over losses owing to rupee appreciation against dollar. Cognizant, the other major IT company, which is not listed on the Indian bourses, but on the Nasdaq, also confirmed the trend. It had its trough on November 26 and last week it recovered by 11 per cent.

Of the 15 stocks in the BSE IT Index, 13 advanced and two – Karuturi Networks and Tech Mahindra — finished in the red, indicating that only the large-cap counters were the actual movers. The index itself moved up 6 per cent and its P/E improved to 25.24 from its previous score of 23.75 mainly due to TCS, Infosys, Wipro and Satyam. The Sensex also shot up because of these IT stocks.

Mr Ajay Jaiswal of Angel Broking said market’s biggest apprehension related to the IT stocks was that the rupee might breach the consensus resistance level and cause uncovered loss during the current quarter. “Most of the IT biggies in their guidance suggested pegging forward cover till Rs 39.50 a dollar. They have been proved right. Since more than 50 per cent of the revenue of these companies is dollar-denominated, rupee value has a direct impact on earnings,” he added.

However, medium to long-term prospect of acquisitions by the cash-rich Indian IT companies are also behind the current recovery.

overseas acquisitions

According to Mr Ashith N. Kampani, Managing Direcor of JM Financial, in the medium-to-long term, Indian IT companies are likely to look for acquisitions overseas as it makes economic sense in the backdrop of relatively higher rupee value against the greenback, as also for their growth.

Euronext-listed Capgemini today shot up 10 per cent on unconfirmed reports of Wipro’s acquisitive interest.

Some of the analysts, however, felt that today’s sharp rise in IT stocks is also linked to the big operators tactical move for cornering them for later distribution. After the year-end, market participation is expected to increase, particularly from the overseas investors.

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