The Hindu Business Line : Denial of auto bailout package makes IT stocks go downhill

Mumbai, Dec. 12 The proposed US automobile industry bailout package, which was rejected by the Senate on Thursday, sparked off a fresh fall in IT stocks, which have been under continuous selling pressure for sometime now.

The BSE-IT index fell by 2.88 per cent on Friday, while the benchmark Sensex was marginally up by 0.46 per cent.

Weak link

Many marketmen said there is only a marginal direct correlation between the Senate’s dismissal of the auto bailout package and the fall in IT stocks. However, any bad news on the US economy front hits IT companies, as cuts in IT spending by US companies would dent business for Indian vendors, they added.

The BSE-IT has declined more than 12 per cent over the last one month.

There is nothing positive happening currently, and with the economic slowdown everywhere, IT stocks have been under selling pressure for some time, said Mr Sandeep Shenoy, strategist with PINC Research.

“The billing rates too are seeing pressure, which is a cause of concern for the Indian IT companies,” said Mr Manish Sonthalia, VP-Equity Strategy, Motilal Oswal Financial Services.

An Emkay research report on Infosys Technologies mentions that the demand environment remains challenging, with the company now aligned to a growing possibility of “flat to down” client budgets for calendar year 2009.

The report also quotes a senior executive on the matter: “Clients willing to do more for less however don’t want to stop action but pressure on pricing remains.”

Stock prices

The IT stocks are quoting at less than half their 52-week highs in many cases.

The stock price of Infosys Technologies is now quoting at Rs 1,107, against its 52-week high of Rs 2,017 in June this year.

Satyam Computers is now quoting at Rs 220, against Rs 544, its 52-week high in May. The stock price of TCS is now Rs 482, down from Rs 1,124.95, its 52-week high in December 2007.

Wipro’s stock stands at Rs 238, against Rs 552 in December 2007.

The fact that there is high institutional ownership of IT stocks also seems to be a reason for increased selling pressure, said an analyst in Mumbai.

There is selling and shorting happening by institutions, which is pulling down stocks further, he added.

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