Low valuations, weakening rupee put the shine back into IT stocks

Low valuations, weakening rupee put the shine back into IT stocks
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First Published: Thu, Mar 27 2008. 12 49 AM IST
Updated: Thu, Mar 27 2008. 12 49 AM IST
Mumbai: After sliding from heyday highs, Indian technology stocks have suddenly found some lost life. A dozen large- and mid-cap IT stocks have rallied strongly in the five trading sessions since 17 March, backed by strong demand from institutional investors.
Much of this is due to low valuations, as well as the weakening of the rupee against the dollar. Most of these IT firms are big exporters to the US, and a stronger greenback means better returns.
“Some Indian and foreign institutional investors could be accumulating these (IT) stocks considering low valuations,” said Nimesh Mistry, an IT analyst with the Indian brokerage arm of US-based Man Group Plc., explaining the recent sharp hike in IT stocks. But the outlook for many technology stocks is uncertain as IT spends of US clients will be known only in the new fiscal starting 1 April, Mistry said.
In their glory days, technology stocks were momentum stocks, with price-equity (P-E) multiples higher than the benchmark Sensex on the Bombay Stock Exchange (BSE). But after being battered on fears of the slowdown in the US economy a strong Indian rupee, the P-E multiples of large and mid-sized IT stocks are now in line with Sensex.
IT stocks, including Sensex constituents Infosys Technologies Ltd, Tata Consultancy Services Ltd, Wipro Ltd, Satyam Computer Services Ltd and HCL Technologies Ltd, have surged more than 10% in the past five trading sessions.
With 31% added in just five sessions, Mumbai-based Mastek Ltd is the biggest gainer among IT stocks. It gained 16.7% on Wednesday.
Anita Gandhi, head of institutional business at Mumbai-based brokerage Arihant Capital Markets Ltd, said institutional demand has resurfaced for large IT stocks. “These (large IT stocks) have now become defensive stocks, like large FMCG (fast moving consumer goods) stocks,” she said. However, considering their projected earnings growth of 25-30%, the current valuations are cheap, Gandhi said. Some of the large domestic insurance funds and mutual funds have recently placed large buy orders for IT stocks, she said.
The KPIT Cummins Infosystems Ltd stock was the biggest gainer across the BSE stock universe on Wednesday, up 23% at Rs75.85. Last week, it had suffered losses, largely on account of the wide portfolio sell-off by the fallen US investment bank Bear Stearns Companies Inc.
Some other big gainers included mid-sized firms such as Core Projects and Technologies Ltd, Prithvi Information Solutions Ltd, Patni Computer Systems Ltd, Mphasis Ltd and Tech Mahindra Ltd, which gained in the 10.5-14% range.
nesil.s@livemint.com
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First Published: Thu, Mar 27 2008. 12 49 AM IST
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