‘Plunge in infotech firms’ valuations is sentiment-driven’

Our Markets Bureau

Chennai, Sept 17: The drastic fall in the valuations of information technology (IT) companies after the attacks on the US is driven by sentiment rather than fundamentals, according to a cross section of analysts.

Frontline IT stocks have lost about a fourth of their value after the attacks. Infosys closed Monday’s trading session at Rs 2,618, down 25 per cent from last Tuesday’s levels. Similarly, Wipro closed at Rs 1,087 (down 27 per cent) and Satyam Computer closed at Rs 127 (down 27 per cent).

“The sentiment is extremely negative and marginal capital flows have a large impact. As per the latest information available, there has been no change in the earning estimates of the IT companies,” says Pioneer ITI vice-president (investments) R Sukumar.

According to First India Asset Management Ltd vice-president and fund manager P Singaravelu: “The drastic fall in valuations is certainly not warranted by fundamentals. There could be concerns over the impact on IT spending by sectors such as banking, financial services and insurance. But there is no reason for the IT sector as a whole to get affected.”

The valuations of IT companies are attractive, say fund managers. Are they actually walking the talk and buying stocks in these market conditions? Says Mr Sukumar: “The cash component of our funds is lower today and will use buying opportunities as they come.”

According to an analyst at a local brokerage house, it is clear that the markets are not behaving in a rational manner. He says it is understandable that the stock of a company that is dependent on overseas markets or using imported items getting affected. Stocks which are insulated from global happening, such as a publishing house, getting affected clearly points that the market is sentiment driven.

On the IT front, some of the apprehensions are that the decision making could get delayed, sales cycles could lengthen, debtors period could increase, analysts feel.

There has not been any comments from IT companies on the impact of the US terrorist attacks. Analysts say that is not possible for IT companies to comment on the outlook until they get the impact on future spending from their clients, which could take some time.