The rupee appreciation since April 2007 has not discouraged foreign institutional investors (FIIs) from increasing their exposure in front-line information technology (IT) stocks.
They have increased their holdings in Infosys Technologies, TCS and Wipro between two and four per cent, going by the shareholding data for the quarter ended December 31, 2007.
The FIIs’ stake in Infosys Technologies, for instance, moved up from 32.55 per cent in March 2007 to 32.78 per cent in September 2007 and 33.25 per cent in December 2007.
They added 28.04 lakh shares since March last year as the stock dropped by 38.8 per cent from its high of Rs 2,439.
TCS, the country’s largest software services company, has been on the FII radar despite the stock having lost 31.6 per cent from its 52-week high of Rs 1,350.
The FIIs added 24.94 million shares to their portfolio since March 2007. As a result, their stake in TCS increased from 7.06 per cent in March 2007 to 10.65 per cent as on December 31, 2007.
The stock price of Wipro too declined in line with its peers – down 33.3 per cent from its 52-week high of Rs 690.
Undeterred, FIIs bought 12.41 million shares of Wipro in the last nine months, increasing their exposure from 5.14 per cent to 6.04 per cent.
The major reason behind the stake hike by FIIs has been cheap valuations of front-line IT stocks, in terms of price to earning multiples (P/E).
Though the 30-scrip Sensex is trading at P/E of over 26 based on trailing twelve months (TTM) earnings, Infosys Technologies and TCS are available at a P/E of over 18 times.
Wipro, which will announce its third quarter result tomorrow, is trading at a P/E of over 21.31 times.
Analysts expect the forward earnings of these stocks to be much below their earnings potential going forward.
Infosys Technologies has been trading at P/E of 17.5 times; TCS trading at 16.4 times and Wipro is trading at 17.4 times estimated FY 2008-09 earnings.
There is buying in IT stocks as the North American financial services’ spend is expected to grow at the rate of 4.1 per cent year on year, inspite of a slowdown in 2008. The IT spending by European financial services should remain strong at 5.7 per cent.
Accenture said that it has not been impacted by the changes in IT budgets so far. “ …70 per cent of US companies in the business round table expect pretty significant increases in sales and almost 80 per cent expect their employment to rise”, it reported.
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Friday, January 18, 2008
FIIs raise stake in major IT stocks
Sunday, January 13, 2008
Rupee rally to cut IT salary gap in US, India
The adverse impact of rupee appreciation against the US dollar is well known for the IT sector, but the robust local currency is also narrowing the gap in salaries of software professionals in US and India.
While the gap is likely to drop by up to 21% in 2008 from the levels seen in 2006, it is still high enough to keep India's competitive edge as a low-cost market, says a white paper by leading executive search firm Manpower.
According to data compiled by Manpower, the sector's staff level salaries were as much as 86% higher in the US compared to India in 2006. However, this gap declined to 82% in 2007 and is expected to decline further to 78% in 2008.
In executive level salaries, the gap dropped from 68% in 2006 to 60% in 2007 and could further decline to 52% this year.
However, the steepest decline of 21% is likely to be seen in the middle manager level, where the US salaries used to be 69% higher in 2006, but would be only 48% higher than India in 2008. This difference stood at 57% in 2007.
While noting that salary is the biggest cost component, accounting for 45% of IT companies and 40% of BPO costs, the white paper said that a close comparison of Indian and US salaries indicates a narrowing gap in cost arbitrage during 2006 to 2008.
Concerns have also been raised periodically that the adverse impact of rupee appreciation could force IT companies, for whom exports account for a major part of revenues and profits, to cut down on the wage hikes and other employee costs in order to offset the impact on their margins.
Friday, January 4, 2008
IT stocks witness profit booking
IT stocks wilted ahead of third quarter results. According to analysts, top IT stocks witnessed profit booking as the latest US job data failed to provide any positive signal while the rupee moved up 0.22 per cent against the green back.
The BSE IT Index finished with a loss of 1.02 per cent on Friday while the benchmark Sensex comfortably closed the session up 2.38 per cent, after touching its all-time high.
Spending plans
According to Mr Ajay Jaiswal, an analyst with Angel Broking, the IT counters are drifting sideways in absence of clear direction. “All the top stocks are in the midway between their recent lows and tops.”
From January 11 onwards, the quarterly results are likely to come in.
Till then, a drifting price trend could reflect the market’s indecision. There is still no clarity on the US IT spending plans.
But industry insiders said in the next four weeks many of the Key US spenders would firm up their annual budgets.
Mr S. Mahalingam, CFO, TCS, feels though the US financial sector has been through a troubled times in the past quarter, no corporate has said they are reducing spending.
He said that so far the existing rates have not come under pressure.
Till the dollar touches Rs 40 or above, there will be sustained weakness in IT stocks. The market is waiting for Infosys quarterly results and guidance to provide direction," said Mr Vishwas Agarwal, independent technical analyst.
Cost Realities
The guidance by the IT companies is expected to capture the unfolding reality to an extent, according to analysts.
“But until the end of the first quarter of 2008, one may not be absolutely sure how the rupee trend (against dollar) would pan out in 2008-09 and how dollar-denominated IT market would readjust to the emerging cost realities,” said an official with a domestic IT major.
Among the top counters, the fall in Satyam was the biggest at 0.91 per cent, followed by Infosys (0.83 per cent), TCS (0.58 per cent) and Wipro (0.09 per cent).
The average delivery ratio of around 60 per cent in these stocks suggested more of profit booking trend than trading activity.
