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IT Stocks hammered by worries of US slowdown

March 28, 2007

TCS plunged 4.3% to Rs 1205, Wipro lost 4% to Rs 561.70, Satyam Computer shed 4% to Rs 453 and Infosys shed 3.1% to Rs 1990.

IT stocks fell for the second day in a row today. The fall on Monday (26 March) arose out of concerns from the rupeeā€™s recent surge against the dollar. The BSE IT Index had lost 58.31 points on (26 March), to 5,009.42. IT scrips had recovered from their lower level after a sharp fall in late-February – early-March 2007. The BSE IT Index had surged to 5,095.28 by 22 March, from a low of 4,730.30 on 5 March.

A crisis in the US subprime mortgage sector, which issues mortgages to high-risk borrowers, has raised concerns whether the broader housing sector, and even the world’s largest economy, might be dragged down as well. The IT industry derives up to 60 – 70% of its revenue from the US market. The IT industry is eyeing an export turnover of $31 billion in the fiscal ending March 2007, at a time when the demand for offshore outsourcing remains strong.

Some in the investment community believe that IT bellwether Infosys’ guidance for FY 2008 (year ending 31 March 2008) can be conservative in view of risks of a global slowdown. Infosys unveils its full year guidance at the time of announcing fourth quarter and annual results in March.

Any rise in the rupee directly impacts the revenue and profits of IT firms proportionately. The Indian rupee traded just below its strongest level in more than seven years on Wednesday (28 March 2007), as banks continued to sell dollars to generate funds in order to tide over a cash crunch.

At 12:00 IST, the rupee was at 43.157/167 per dollar. A break of 43.115 will take it to its strongest level against the dollar since November 1999. The rupee had settled at a 20-month peak of 43.29/30 on Monday (26 March).

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