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Rising Nasdaq may undo Indian tech stocks damage

NetScribes/Abhijit Basu

Analysts expect November to undo what October did to Indian software stocks. Excellent second quarter results by the software majors failed to do anything more than just nudge these scrips up amidst the general gloom besetting Dalal Street.

But the sentiments have improved since, with the Nasdaq, a major influence on the Indian markets, gaining back some of its October losses. The tech-heavy Nasdaq Composite index dived in mid-October on profit warnings from US software majors.

The US markets are expected to move up after the presidential election on November 7 and ahead of the long year-end holiday season. Consequently, analysts expect the Indian software stocks to recover from their mid-October lows and stabilise towards the end of November.

"We have been witnessing a slowdown in software services in the US. It is a clear indication that the Indian market is affected by movements on the US bourse," said an analyst at a Bombay-based brokerage.

Indian software scrips hit their October bottoms during the week ending October 23. On the other side of the mirror, the Nasdaq Composite touched its 52-week low of 3026.11 on October 18.

Infosys, Wipro and Satyam touched their lowest October closes on the 18th - at Rs 6241.30, Rs 1916.10 and Rs 307.00, respectively.

Surprised? "It's all linked to the Nasdaq," explains the analyst. "The good results of the Indian IT majors had no effect on the stocks."

Blue-chip Infosys closed at Rs 7576.05 on October 3, the first trading day of the month. By October 10, it had been hammered down to Rs 7288.70. On October 11, the company announced a 134 per cent jump in net profit. In spite of that, the stock went down to Rs 6800.50 on that day and went down further to Rs 6789.75 the next day.

Satyam stood at Rs 493.05 on October 3 before the results were announced on October 10, the scrip dipped to Rs 489.30 (October 9). It dipped further to Rs 468.70 on October 10. Even a 118 per cent growth in quarterly net profit could not stop it from sliding further to its month's lowest of Rs 307.00 on October 18. Although the stock picked up marginally after that, it ended the month at Rs 307.25, not far off its October low.

Silverline Technologies also went down from Rs 366.85 on October 3 to Rs 303.75 on October 31.

Software and IT training major NIIT's scrip has been on a slide ever since its all-time high of Rs 3580.75 in January 2000. However, the scrip rose a marginal 10.42 per cent in October from Rs 1427.90 on October 3 to Rs 1576.80 on October 31. NIIT beat market expectations with a 56.9 per cent rise in net profits for year ended September 30, 2000.

In spite of the Nasdaq-induced fall, analysts feel that the value proposition of Indian software service companies remains intact.

A recent study by Morgan Stanley Dean Witter also points towards the effect Nasdaq has on the BSE. But it goes on to say that the correlation has come down of late, and is slated to come down further in the coming months.

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