Markets

Infosys' 52-week low slide raises alarm bells

R.Y. Narayanan Coimbatore | Updated on July 16, 2012 Published on July 16, 2012

Indian software majors have significant exposure to the European banking sector which are facing LIBOR scandal, it is not clear to what extent they would take a hit.

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For long considered the bellwether stock of the IT sector, Infosys sank to its 52- week low today, raising concerns about not only the immediate performance of the stock on the bourses but the sector as a whole.

TCS, which reported robust first quarter numbers and is expected to replace Infosys as the numero uno choice of investors (in the IT basket), also suffered significant loss.

Two other IT majors HCL Tech and Wipro, that complete the top IT quartet, escaped bruising losses. But this may also be because they are yet to come out with their Q1 numbers for the current fiscal.

LIBOR scandal

There are several imponderables awaiting the IT sector. Apart from the general global slowdown, what has raised further concern about the performance of the Indian IT sector in the near term is the fresh trouble some of the major global banking institutions are facing over the LIBOR scandal.

While Barclays has agreed to fork out a hefty fine, several big guns of the financial sector on either side of the Atlantic are said to be facing a probe and what punitive action they would face is not immediately known.

Since the Indian software majors have significant exposure to the banking sector, it is not clear to what extent they would take a hit.

Infosys loses sheen

Infosys dipped to its 52-week low on the BSE today while missing it by just a whisker on the NSE. The stock hit a yearly low of Rs 2,164 on the BSE before pulling back to Rs 2,172.60, a loss of Rs 55.20, at the close. The stock witnessed a trading volume of 3.51 lakh shares today compared to the two-week average volume of 2.18 lakh shares in the exchange.

On the NSE, the stock shed Rs 62.80 to close at Rs 2,167. The stock had dived to a low of Rs 2,163.25 which was just Rs 2.75 more that its 52-week low of Rs 2,161.50 that it had touched on August 25, 2011.

The Infosys stock had escaped the December (2011) market meltdown and touched a 52-week high of Rs 2,994 hardly five months ago (on February 22, 2012). It has lost nearly 27 per cent since then, a significant part of it after its 2011-12 results and after the dismal first quarter performance in the current fiscal.

TCS was another member of the IT quartet to suffer significant value erosion. The stock shed Rs 39.45 on the BSE, closing at Rs 1,210.20. But the stock is still far away from its 52-week low of Rs 902.90 that it touched on August 22 last year.

HCL Tech and Wipro, in comparison, did not suffer any major loss. While HCL Tech lost just Rs 2.10 to close at Rs 481.40 (its 52 week low was Rs 360.10), Wipro closed at Rs 355.55, a loss of Rs 3.65. But the stock is dangerously close to its 52- week low of Rs 310.20.

Responding to queries from Business Line on what lies ahead for Infosys and if it could fall further, Ms Ankita Somani (Analyst- IT & Telecom), Angel Broking, Mumbai, said: "The performance of Infosys has been below market expectations as well below its peers since past several quarters." While its guidance for the current year has led to sharp sell-off in the counter, she said: "fundamentally for long-term view, we have Accumulate rating on Infosys".

Contagion effect

On whether the fall of TCS today was merely a contagion effect or will it too fall further, she observed that the stock was trading at its fair valuations since quite sometime and due to this "we do not (expect) any substantial upside from current levels". She said: "we cannot relate fall of TCS today with any event, it is just a contagion effect and in tandem with market".

However, she felt that HCL Tech is expected to perform better than Wipro as well as Infosys in this current quarter and maintained 'Buy rating’ on the stock. Wipro was expected to post muted results this quarter, but was expected to do better once "restructuring done in the company started yielding fruits".

Asked about the impact of the European meltdown and the LIBOR scandal rocking Western banks on the Indian IT sector, Ms Somani said in BFSI it is the capital markets and investment banking clients "which are the major problematic areas". Though the BFSI sector’s growth may be slower than average industry growth rate, other verticals such as retail, manufacturing, life sciences and energy and utilities would power the growth momentum.

She said: "Definitely, this will affect growth rates of all the IT companies and keeping that in mind, we expect volume growth of tier-I Indian IT companies to scale down to below 15 per cent in FY 2013 from 19-20 per cent+ in FY2012."

Published on July 16, 2012
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