The Hindu Business Line : Tech indices fare better vis-à-vis benchmarks

The volatile market and depreciating rupee apart, market experts continue to be cautiously optimistic about the IT sector. There is a perception that the IT sector has technically outperformed other sectors and that the going will only get better.

"Technology stocks have fared better vis-à-vis the broad market fall. The tech indices have shown more strength," said an analyst with a leading domestic brokerage.

Dismissing reports that companies such as Infosys and Satyam may not benefit from a depreciating rupee due to hedging, analysts maintained that gains would come through but with a lag.

"The IT sector, particularly the frontline stocks, has been attracting `flight to safety' kind of investment buying. That is because they are largely predictable in terms of performance. This provides a comfort factor while putting a price to the stock," the head of research at a leading brokerage said.

With mid-caps liquidity is a problem and there is no easy exit. Typically, smaller companies tend to avoid hedging. It is not such a strong trend as with the frontline companies. "Mid-sized companies tend to rely on a few customers or very large small contracts. Thus quarter on quarter, there is a certain amount of unpredictability. This puts a discount on their valuations," said an analyst.

In a scenario where Indian markets are mirroring global trends, there is a perception that Indian IT companies would fare better if Nasdaq were to close strong.

On Tuesday, the Nasdaq composite index fell by 2.06 per cent.

The CNX-IT has lost ground by almost 13 per cent at Wednesday's close of 3869.65 from 4443.05 on May 10, a day before the markets witnessed their record fall.

The Bombay Stock Exchange Sensex, which ended at 10398.61 on May 31, has seen a 17.5 per cent fall from 12612.38 on May 10.

However, CNX-IT crashed 3.86 per cent on Wednesday against a 3.60-per cent drop in Sensex over Infosys' remarks that a one per cent change will have around 40-50 basis points impact on the operating margins, because of the marked-to-market hedges at $44.48.

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