Information technology stocks regain glory on strong dollar

BSE IT index outpaces Sensex; Satyam hits 52-week high

Adith Charlie

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Mumbai, May 30 Counters of information technology stocks are turning out to be islands of safety for investors in a market that is desperately seeking direction. On Monday, Satyam Computer Services hit a 52-week high of Rs 544 on the BSE, reflecting investors' interest in information technology companies.

The BSE IT index was up by 2.11 per cent today and closed at 4643.79. On a week-on-week and month-on-month basis, this index has gained 7 per cent and 9 per cent respectively.

Investor Attention

The benchmark Sensex on the other hand has tumbled 1.41 per cent from last week and 5.04 per cent in the last one month.

A senior official with the Hyderabad-based Satyam told Business Line that the current rally in IT stocks is a classic case of the relative attractiveness of IT sector going up and that of other sectors spiralling down.

IT is one of the two sectors that are not impacted by micro and macro economic factors such as domestic GDP, rising inflation and higher crude prices; due to this, the sector is seeing a lot of investor attention, said Mr Vishwas Agarwal, Independent Technical Analyst.

Sectors that were most favoured by investors till recently — like power, infrastructure, metals, cement — have all been negatively impacted by above-mentioned factors.

On the other hand, the rising rupee — the biggest party pooper for IT – has been arrested to some extent in the recent past. The rupee has weakened by over 7 per cent vis-À-vis the dollar in the last three months. As Indian IT companies generate majority revenues from software exports to the US, any surge in the dollar value has a positive impact on their earnings.

Outsourcing deals

Another major concern for investors is the sub-prime crisis in the US, which has resulted in several instances of cancellation and postponements of IT projects. However, most IT companies have been vehemently advocating that a recession in the US will only ensure larger outsourcing deals in the long run. "Most IT companies are on record saying that they expect aggressive ramp up from clients by the end of the current year; this, coupled with the falling rupee, has regenerated interest in the IT arena," said Mr Gaurav Dua, Head of Research, Sharekhan Securities.

However, the momentum has not yet trickled down to smaller IT stocks. `One of the reasons is that many large investors and FIIs have a mandate to invest only in large cap IT companies, the Satyam official said. Another reason is that most of the 'B' list IT stocks are delivery based. In a volatile market, investors prefer to stay away from delivery-based stocks.

However, Mr Agarwal predicts that once Infosys crosses Rs 2,000, second-rung IT stocks will see a lot of investor attention.