Take for instance, the case of market leader Infosys. The Rs 250-crore company today enjoys a market cap of Rs 10,822 crore. On an ex-bonus price of Rs 3382 on BSE, the company enjoys a PE multiple of 91. The question is whether this discounting is justified?

To attempt an answer, a look at the fundamentals is necessary. Infosys has been growing at compounded rate of more 75 per cent over the last seven years. During this period, the company's operating income has grown from Rs 9.38 crore to a whopping Rs 258 crore. On the bourses, the growth is even moreimpressive. The company came out with an initial offer in June 1992 at Rs 110. The scrip was listed at Rs 157 on BSE. Since 1992, the company has given three bonuses, all in the 1:1 ratio.

The scrip is currently trading at Rs 3382 after adjusting for three 1:1 bonuses. This means, an amount of Rs 11,000 invested in 1992 in Infosys is today worth more than Rs 27 lakh. And, this bonanza is not restricted to the original investors. An investment of Rs 1.23 lakh in January 1998, has risen by over by 5.5 times.

To that extent, it seems that the high growth rate of the company is strong enough to back Infosys's market price. Agrees Manish Gunwani, a research analyst at SSKI, ``Fundamentally, the valuations seem to be justified.'' Even Milind Karmarkar of Dalal & Boracha voice the same views. ``Being a market leader Infosys will continue to enjoy a hefty premium.'' The stock is quoting at a premium to the IT sector. While the sector is quoting at 30 times to the fiscal 2000 earnings, Infosys is quoting at 55times.

However, others differ. According an NSE member, ``The company is currently enjoying valuations more than Microsoft does abroad, which is ridiculous.

Even a growth of more than 60 per cent per annum does not warrant these kind of valuations. As most of the software firms have low equity bases, it is just that the supply of paper is far less than the demand.'' Agrees Vijay Bhusan, former member of the DSE board, ``At current valuations, the scrip is more than adequately priced, more so as the software companies in India are not what they are abroad.

India software companies are basically service providers i.e., they are at the lower-end of the IT ladder. Abroad, a software company like Microsoft is essentially marketing products. It has well-established brands, while most Indian firms are dependent on few clients for their business.''

However, a section of the market feels there is still some steam left in the scrip. An NSE dealer with a foreign brokerage house feels that the scrip will crossRs 4000 in less than a month. ``With listing of its ADR at Nasdaq almost through, a price of Rs 4000 is justified,'' he adds. According to BSE member Ramesh S Damani, BSE, ``We are at the dawn of the information age in India. To India, the infotech industry is going to be as important as oil is to the Middle East and the auto industry to Japan. Infosys has a sound market cap to support its price. However, the temporary mismatches of over-bought and over-sold positions will continue to persist.''