The Hindu Business Line : Mid-cap IT companies remain firm in recent past

Mumbai, July 11 With the rupee on a steady incline, IT companies have been at the receiving end. Mid-cap IT companies, however, have been faring better on the bourses with many outperforming the larger cap companies in the recent past.

Companies such as Mastek Ltd, Polaris Software Lab Ltd, 3i Infotech and i-flex Solutions Ltd have attracted investor interest.

The stock of i-flex Solutions has been up 0.39 per cent for the month and it closed up 0.21 per cent at Rs 2456.95 on Wednesday. Mastek Ltd closed down 0.44 per cent at Rs 285 and has been in the Rs 285-Rs 290 range for the month.

Growth prospects

“There is a lot of growth prospects in these companies as a lot of them are products based companies and are not linked to the software delivery model which is the model that larger IT companies follow. Hence, the growth potential is higher in these mid-cap companies. This could be a reason why money is shifting from large cap companies to the mid-cap ones,” said Mr Harinder Kumar of ICICI Direct.

The expectation of good first quarterly results is another trigger for the good performance of these stocks. The stocks have been running up in the last week or so in anticipation of good results. However, the IT Index crashed on Wednesday after Infosys, according to the Indian GAAP, failed to meet its revenue outlook. Its first quarter revenue for the financial year 2008 totalled Rs 3,773 crore when compared with the outlook of Rs 3,896-3,912 crore.

However, according to Mr Harit Shah from Angel Broking, the IT mid-cap stocks cannot be taken as a homogenous group and there are company specific issue for the rise in stock prices.

“For example, 3i Infotech is a company which gets 35 per cent of its revenue from India, 28 per cent from the US and another 15 per cent or so from the UK. Therefore, this company may not be affected by the rupee appreciation that much as it has a natural hedging process in place,” said Mr Shah.

Going forward, IT stocks are expected to do well in the long-term but will continue to under-perform in the short-term as the rupee appreciation will continue to be a worry.

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