On A High
On Thursday, June 5, 2014, the S&P benchmark index, the BSE Sensex, closed at a lifetime high of 25,019.51 – a gain of about 0.9 percent over the previous closing and the first time the index has closed over the 25,000 level. Today, the Sensex went up further to close at 25396, up 1.51%. Reflecting the sentiment, on Thursday the 50-share NIFTY index also topped the crucial 7450 level, due in great measure to the fantastic rally in metals, FMCG, power, and, oil & gas stocks. Today the Nifty scaled new heights at 7583, up 109 points. On Wednesday, markets had noted that overseas investors had bought over $32.25 million worth Indian shares further buoying sentiments. Celebrations are underway and most market analysts are predicting a spectacular bull run. Picture perfect? A closer look at the markets, however, reveals that the tech and the pharma sectors that may yet be holding the broad market indices back. The sectors have been underperforming in the wake of a strengthening rupee and seem to be the only weak links in the ever-growing chain of a successful market trajectory.
IT Slump
With Narendra Modi bagging an absolute and emphatic majority for the BJP at the Lok Sabha polls, confidence in the domestic currency has shown a major improvement. The Rupee which followed a volatile path through the last financial year and even threatened to blow up but following NDA’s overwhelming victory on May 16, foreign institutional investors (FII) were reported to have made massive purchases of Indian stocks and the INR edged higher against the USD. A fallout of this was seen in the prices of IT and tech stocks that took a severe beating.
| Top Indian IT Stocks | |||||
| Company | 6-Jun-14 | 6-May-14 | 1 month low | 52-week high | 52-week low |
| TCS | 2,084.05 | 2,198.95 | 2,000.50 | 2,384.20 | 1,382.10 |
| Infosys | 2,999.80 | 3,464.15 | 2,894.00 | 3,847.20 | 2,343.00 |
| Wipro | 507.65 | 514.60 | 475.35 | 610.50 | 319.40 |
| HCL Tech | 1,327.85 | 1,383.55 | 1,257.00 | 1,688.65 | 721.00 |
| Tech Mahindra | 1,905.85 | 1,801.65 | 1,728.00 | 1,936.35 | 910.00 |
| Oracle Fin Serv | 2,939.90 | 2,970.70 | 2,775.00 | 3,415.00 | 2,590.00 |
BSE Data
A look at the data above confirms that while top IT/Computers stocks are nowhere near their 52-week low levels, there has been a distinct slump in these, causing investors to worry about their health in the face of a strengthening rupee.
Buy At Every Dip?
While domestic investors are pretty negative, foreign investment managers believe that the Indian IT stocks may yet expect a bull run. In early May, Richard Gibbs, the global head of Macquarie Securities said that despite the expected correction in IT and tech shares, the sector would present a great investment opportunity to those who were patient. The sector had extended a great run at the NASDAQ and in Indian markets; the weight of investors’ expectations is great and a natural dip is a necessary pause. A number of foreign fund managers believe that the Indian tech stocks still have a lot of steam left in them and are attractive buys at their current prices. While Pritesh Mehta of IIFL suggests that Wipro may climb to 550-555 levels, analysts such as Prakash Diwan of Altamount Capital Management and Sudarshan Sukhani advice buying Infosys at around 2850-2900. Wipro’s climb in the short term is the most popular bet among market analysts at the moment.
Pre-Budget Outlook
While the RBI is currently focused on high interest rates and curtailing inflation, the government is keen on boosting growth and encouraging spending. The rise or fall of the domestic currency is likely to be a tug-of-war between the two. While it looks certain that the rupee is unlikely to fall again, even though it may not show another spurt of growth against the dollar soon, the IT and Tech companies are certain to benefit from the all-round strengthening environment back home. The dips seem to be a good time to stock up on blue chips, and investors are likely to find them back within their reach after many months of rallying hard. IT in India is far from losing its sheen – but the companies are in need of some soul-searching and the investors of research and patience.
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