IT Stocks Take Hit From Rupee Appreciation, Decline Up To 17%

Mumbai/New Delhi, May 22: | Updated: May 23 2003, 05:30am hrs
The beleaguered condition of software stocks has further worsened on account of the belligerent rupee. The appreciating rupee to the dollar has hammered software stocks up to 17 per cent during the current week so far.

The losses were led by tech pivotals, like Infosys Technologies, Wipro, Satyam and HCL Technologies. Polaris Software and Visualsoft were also among the top losers.

In the last five trading sessions, the stock of Infosys lost 6.75 per cent to close Rs 2,689.05 on Thursday, Satyam lost 8.8 per cent to close at Rs 160.10, Wipro plunged 8.95 percent to finish at Rs 824.05, HCL Technology dipped by 13.2 per cent to close at Rs 122.75 and Digital GlobalSoft slumped 6 per cent to close at Rs 506.80. On Thursday, Infosys and Satyam plummeted by four per cent, while Wipro dived by 4.5 per cent. Dealers said since the rupee breached the Rs 47-mark, most of the frontline software stocks have plunged about 10 per cent. In the last four days, the rupee has gained about 25 paise to the dollar.

An analyst with a foreign brokerage firm said: Basically, margins will be under pressure. The appreciating rupee will have some negative effect on the margins. As a result, the profit growth of these companies will be affected. The valuations of software stocks are quite high and hence we need a substantial correction from current levels, he added.

UBS Warburg Pincus, in its research report dated May 21, 2003, downgraded the top IT companies from buy to neutral, which also led to the downfall, dealers said.

While the BSE Sensex fell by a mere 0.52 per cent since last weeks close, the BSE IT index has nosedived 10.37 per cent during the period.

The strengthening rupee against the dollar is expected to make a dent in toplines of software companies as their exposure to the US markets is huge. Top technology companies get over 60 per cent of their business from the US markets.

Market analysts feel that the short-term outlook for software is not good.

It all started with the guidance of 11/13 per cent given by Infosys for fiscal 2003-04. The market has taken it very negatively, an analyst said.

However, analysts said in the medium term, all will depend on the US economy. There is a lot of business for the larger software companies, but customers are offering lower rates, the analyst added.

Besides, there has been shift of investor interest from technology to industry stocks. A host of old-economy stocks, led by state-run banking and auto-ancillary stocks, has hit an all-time high or a years high in the last two-weeks or so.