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Home > Business > Stock Market News > Hot Pursuits

Technology stocks get a reprieve

May 27, 2003 12:32 IST

Technology stocks were subject to renewed buying today on bargain hunting after a recent fall.

The last six sessions, between 16 and 26 May 2003, have seen the BSE IT Index fall 12.40% or 134.74 points to 951.66 from 1,086.40.

The bottomfishing today propelled the three Sensex software stocks higher - HCL Tech (up 3.32% to Rs 123.05), Satyam Computer (up 3.17% to Rs 162.75) and Infosys Tech (up 0.85% to Rs 2,650).

The buying in IT pivotals pushed the BSE IT Index up by 2% or 18.07 points to 969.73 today, recovering from its low of 945.86 on opening.

IT stocks have also found favour due to reports that India will move the WTO against the decision by by four US states -- New Jersey, Maryland, Connecticut and Washington -- to ban outsourcing of government contracts to companies in other countries. Analysts say that the report is a sentiment booster, but not likely to set off major gains as not much business is garnered as a result of outsourcing by U.S. government agencies.

Tech stocks have been depressed of late over concerns that the strengthening rupee vis a vis the US dollar would hurt export incomes. The rupee was trading at 46.8350/8450 per dollar in morning deals compared to its last close of 46.90/91. The rupee has gained as much as 2.6% against the dollar in 2003.

This is much cause for anxiety for IT companies as they derive a major portion of revenues from exports. The rupee's appreciation means that IT companies would no longer get the 'other income' (from a depreciating rupee). On the flip side, most IT companies take forward cover and are, to that extent, insulated against the appreciation of the rupee, analysts say.

Already, pressure on billing rates has been haunting IT sector stocks. Software companies have been under pressure to lower billing rates as their clients have to reduce costs following the global economic slowdown. Competition is also hotting up for Indian IT companies with some foreign companies setting up shop in India and even undertaking in-house operations.

While billing rates are falling, costs are up, thereby squeezing profit margin. A healthy volume growth requires employee additions, and increments and promotions to the existing staff. Increase in sales and marketing expenses and stretching of sales cycle are putting additional pressure on margins.

On the flip side, local IT companies have displayed strength in cost-competitiveness and proven delivery capabilities. Nevertheless, analysts expect a further pressure on billing rates of IT companies in the coming months.

Other IT stocks that proved firm today included Wipro (up 2.12% to Rs 826.50), VisualSoft Technologies (up 4.03% to Rs 123.95), Kale Consultants (up 7.20% to Rs 33.50), Digital GlobalSoft (up 4.48% to Rs 496.10), Polaris (up 4.37to Rs 117), Hexaware (up 4.27% to Rs 108.60) and Hughes Software (up 3.55% to Rs 207.35).



Source: www.capitalmarket.com

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