Shares of information technology (IT) companies, which had yielded ground on Monday, following a CLSA downgrade of the sector, bounced back on Tuesday following fresh buying and short covering in the derivatives segment.
The Tata Consultancy Services (TCS) stock, which had fallen 3.7% on Monday, gained 3.24% on Tuesday, while Infosys gained 0.65%. The BSE IT index was the biggest gainer, among the BSE sectoral indices, rising 1.16% and outperforming the Sensex gain of 0.31%.
The view on IT stocks improved after the investor relations (IR) team at Tata Consultancy Services (TCS) responded to a CLSA downgrade saying the company hasn?t witnessed any weakening of demand.
Moreover, it termed the US visa issue an irritant, but not disruptive nor an incremental negative to justify a sudden sector downgrade.
India?s largest software exporter, dismissed the downgrade and in an email sent to equity analysts, said, ?Nasscom is working with the US embassy to work out a set of standards to address this (higher visa application scrutiny and rejection) problem. Until that is fully implemented, this will remain an irritant but it is neither sufficiently disruptive nor an incremental negative to justify a sudden sector downgrade.?
TCS said its clients have continued to fund new projects and the ramp-ups are proceeding smoothly. ?Contrary to what was portrayed, the changes in UK?s visa regime haven?t impacted us at all. The Intra-Company Transfer visas that we use are not limited by any quotas and the floor wage specified by the government is lower than what TCS already pays IT employees.?
CLSA had stated that it expects the upcoming months to be a downward inflexion point for IT stocks, driving stock prices down. It added that June quarter results were unlikely to show any material proof points. Indian IT holds little promise of sustainable absolute returns hereon.
?We are downgrading TCS and Infosys to Underperform and have no positive ratings in the sector now,? it stated in the report. ?Within the sector, company (TCS) credentials remain very strong but the stock needs to contend with high expectations and over-ownership,? the CLSA report mentioned.
?The statement from TCS definitely helped improve the sentiment. There was also a considerable amount of short covering after Monday?s broad based sell-off that aided the rally,? said Apurva Shah, head of institutional research at Prabhudas Leelladhar.
?Fresh buying was seen in IT sector stocks on Tuesday, especially in the case of Infosys and TCS. Since the market is not expecting a huge inflow of overseas money in the coming days, the concern regarding rupee appreciation hitting IT companies? revenue generation has taken a backseat. Investors are now preferring IT as a defensive play,? added Sidharth Bhamre, head of derivatives at Angel Broking.