The Hindu Business Line : Tax extension to STPI lifts infotech stocks

Mumbai, April 29 Several positive developments catapulted IT stocks upwards on Tuesday. The BSE IT index, which opened in the red, reversed direction and registered a gain as soon as the Union Finance Minister announced a one-year extension of the tax holiday for software technology parks up to 2010.

The tax holiday, which was originally scheduled to expire in 2009, had kept IT stocks on tenterhooks, especially the medium- and small-cap stocks that were not able to easily afford the alternative SEZ route.

Some market watchers said that the RBI’s move to increase the time for repatriation of the full value of export proceeds from six months to 12 months have also impacted the IT sector in a positive way today. The BSE IT index closed 5.24 per cent up from its previous close. It was the second largest gainer among the indices, after the BSE Realty.

Leading the IT pack were Satyam Computer, which was up 8.22 per cent, Infosys Technologies (5.15 per cent), Wipro (4.70 per cent) and TCS (3.15 per cent). These scrips were also among the top gainers amongst the 30 blue-chip stocks. The other IT stocks that gained were Tech Mahindra, which was up a whopping 10.5 per cent, MphasiS (4.97 per cent), HCL Technologies (7.91 per cent) and NIIT Technologies, which climbed 7.27 per cent.

“This proposal will especially benefit the mid- and small-cap IT stocks. With this, now these companies can now enjoy tax benefits for another year, which in turn will boost their profit after tax by up to 10-11 per cent, which will also increase their earnings per share estimates,” said an IT analyst with a brokerage.

High beta stocks

The RBI policy announcements today changed the overall sentiment in the market today, say analysts. “With the repo rates remaining unchanged, there was heavy buying in the interest sensitive sectors such as banking, auto and realty. And when the sentiment in the market is positive, generally the high beta stocks, that is both frontline and mid-cap stocks, attract a lot of investor interest,” said Ms Anita Gandhi, Head Institutional Business at Arihant Capital Market Services Ltd.

Ms Gandhi also added that the frontline IT stocks had already gathered some momentum with good results from companies like Infosys.

“There was further buying in the IT counters today as the rupee depreciated to Rs 40.46/48, which is positive for the IT companies,” said Mr Sanjay Someshwar of Ventura Securities Ltd.

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