Mumbai: US-listed information technology (IT) outsourcing major Cognizant Tech Solutions Corp.’s muted fourth (October-December) quarter outlook led to a meltdown in IT stocks in India on Wednesday.
The Bombay Stock Exchange’s IT index dropped 4.3% to 4,343. The US accounted for 67% of Indian IT firms’ revenues in fiscal 2007. Cognizant’s stock lost 19.2% in the US market on Tuesday.
Expecting a near-flat growth in demand in the US market, Infosys Technologies Ltd’s stocks slumped nearly 6%, to Rs1,743.85; Satyam Computer Services Ltd dropped 4.03%, to Rs434.85; and Wipro Ltd shed 2.05%, to close at Rs477.35 in Mumbai. Tata Consultancy Services Ltd was relatively stable, losing only 0.63%, to close at Rs998.25.
To make matters worse for the IT stocks, the rupee touched its 10-year high at 39.16 against the dollar early Wednesday, as huge amounts of foreign funds flowed into the system. The rupee shed its early gains and closed at 39.31 against the dollar—down 0.06% against Tuesday’s level of 39.28. According to dealers in the market, the Reserve Bank of India (RBI) continued to buy the dollar at 39.20/21 level.
Tushar Poddar, economist and vice-president Asia Economic Research for Goldman Sachs Group Inc. said the rupee would continue to strengthen, as the capital inflows are not a temporary phenomenon.
“We are going to continue to see rupee strengthen and that is because we will continue to see massive capital inflows into India,” he said. Poddar forecast the rupee would reach 38 against a dollar in 12 months.
According to Navin Raghuvanshi, associate vice-president, Development Credit Bank Ltd, RBI is lowering the bar of its intervention level gradually.
“RBI cannot hold the rupee rise indefinitely and it has to give up,” he said.
“We can see the increasing signs of bringing the bar down gradually as RBI few days back was intervening at 39.35 level. It came down to 39.25 and now it’s at the 39.20/21 level.”