IT stocks rally as Democrats seek Donald Trump’s impeachment
BSE IT index rose 2.5% intraday on a day when rally in the Sensex index has taken a breather as expectations of Donald Trump’s impeachment gather steam
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Technology stocks gained on Thursday as investors troubled by Donald Trump’s clampdown on work visas used by tech workers took heart from expectations that unfolding developments in the US could lead to his impeachment. Stocks were also supported by a weaker rupee, which means higher earnings in local currency.
The BSE IT index gained 1.2% on Thursday. BSE’s 30-share benchmark Sensex slipped 0.7%, while the National Stock Exchange’s 50-share Nifty fell 1.01%.
Tata Consultancy Services Ltd rose as much as 4.6%, hitting a two-month high of Rs2,565.75 a share, before closing up 3.38%. Wipro Ltd closed up 3.47% and Infosys Ltd was up 1%. However, HCL Tech (down 0.6%) and Tech Mahindra (down 2.2%) did not participate in the rally.
According to a Press Trust of India report, a US lawmaker has called for Trump’s impeachment over his alleged involvement in obstruction of justice, after news reports revealed that he had asked then-Federal Bureau of Investigation (FBI) director James Comey to stop investigations against his former national security adviser Michael Flynn. However, the report also said “that impeachment does not mean the president will be found guilty”.
Ashu Madan, president, equity broking, at Religare Securities Ltd, said that the rise in IT stocks is due to “sentimental change”.
“The anti-IT policy by Trump was hurting Indian IT firms and now possibility of Trump’s impeachment brought a ray of hope while weak rupee also aided sentiment,” he said.
The rupee fell over 1.1% during the day, its steepest fall in 21 months against the US dollar, as worries about a Trump impeachment spurred a sell-off in emerging market currencies. It closed at 64.85 a dollar, down 1.06%, from Wednesday’s close of 64.16. It was the sharpest fall since 24 August 2015. The dollar index, which measures the US currency’s strength against major currencies, was trading at 97.495, down 0.08% from its previous close of 97.575.
The BSE IT index rose in the past few weeks when the markets touched record highs, gaining around 5.9% since 28 April. So far in 2017, the Sensex has climbed 14.3% and the Nifty jumped 15.2%, while BSE IT is up merely 0.12%.
Trump’s protectionist policies have hit IT stocks. Last month, the US president signed an executive order aimed at overhauling the work visa programmes that Indian IT companies use to bring overseas workers into the US.
The US justice department has appointed former FBI director Robert Mueller as special counsel to oversee the investigation into suspected Russian interference in last year’s presidential elections.
However, analysts added that the relief rally was temporary and concerns remain. “IT stocks were consolidating for few days but that does not mean uncertainty about the sector’s growth is gone. Its major problems like cost structure and pricing power remain,” said Religare Securities’ Madan.
Siddhartha Khemka, head of equity research at Centrum Wealth Management Ltd agreed that though growth concerns remain, investors were buying IT stocks due to comfortable valuations compared to peers as markets rallied to new highs. He added that the buybacks announced by some companies are helping improve sentiment, but it does not support long-term growth.
Tata Consultancy Services commenced its Rs1,6000 crore buyback on Thursday. The programme will close on 31 May, the company said in a regulatory filing. The buyback, if successful, will be India’s biggest, surpassing Reliance Industries Ltd’s 2012 share repurchase of Rs10,400 crore.
In a 14 May report, Kotak Institutional Equities said, “IT stocks are inexpensive for sure but require catalysts of financial services pick-up, acceleration in digital deals or rupee depreciation. Companies have stepped up payout ratios presenting downside protection to stocks.”