Coronavirus: Promoters of mid-tier IT firms increase stake as shares crash

As stocks of IT services firms took a hit over the past fortnight owing to the Covid-19 pandemic, promoters of some mid-tier companies bought back shares to increase their stakes.
 

Bengaluru-headquartered IT firm Mindtree witnessed its promoter L&T Group buying 0.4 per cent stake in the company through open market operations for around Rs 58 crore during this period. The share price of Mindtree has fallen 22.78 per cent over the past month to close at Rs 699 apiece on the NSE on Friday. The markets were closed on Monday on the occasion of Mahavir Jayanti.
 

Similarly, Pune-based Zensar Technologies’ promoter RPG Group bought back shares worth around Rs 11 crore over the fortnight. The share price of Zensar Technologies dipped 28.70 per cent over a month to close at Rs 88.95 in the last trading session. Blackstone, private equity investor and majority stakeholder of Mphasis, raised its stake by 4 per cent in the Bengaluru-headquartered firm by buying 7.48 million shares for around Rs 525 crore during March 17-20.
 

Newgen Software Technologies is another mid-tier technology firm which has witnessed an increase in promoters’ stake after the fall in its share price. Promoters of the company have bought shares worth around Rs 8 crore since March first week. Similarly, promoters of engineering services firm AXISCADES Engineering Technologies and Quick Heal Technologies have raised their stakes.
 

Normally, cash-rich companies buy back shares of their respective firms if promoters feel that shares are undervalued. “This (buying of shares) shows promoters' confidence in their companies regarding future growth at a time when growth uncertainty has crept in,” said Pareekh Jain, IT outsourcing advisor and founder of Pareekh Consulting.
 

In contrast to mid-tier firms, tier-I companies, including Tata Consultancy Services (TCS), Infosys, and Wipro, have not seen any activity from their promoters and promoter groups despite around 15 per cent fall in share prices.
 

Top three IT services firms of the country lost a combined market cap of about $31 billion over the fortnight as the coronavirus pandemic continued to roil the stock markets. While the market cap of India's largest IT services player TCS dropped by Rs 1.45 trillion ($21 billion), Infosys saw its market cap decrease by Rs 70,000 crore ($7 billion) during this period.
 

Analysts believe given the uncertain business environment, IT majors, instead of going for share purchases, are looking at conserving cash to tide over any loss arising out of the Covid-19 pandemic.
 

The IT industry is staring at a demand slowdown as many developed countries, including the US, have started to shut down establishments for imposing social distancing to fight the spread of virus. As a result, IT companies are already witnessing a delay in winning large deals, with reports suggesting deal signings worth around $3-4 billion had been deferred in March alone.