Border Tension Hammers Frontline Infotech Stocks

Frontline software stocks turned underperformers. The reason: selling pressures from institutions, both domestic as well as foreign, due to war fears.

The IT sector's market capitalisation declined by 7.38 per cent from from Rs 97,754 crore on May 2 to Rs 90,533 crore today. During the period, the BSE Sensex was down 5.38 per cent from 3372.6 on May 2 to 3191.6 today.

The scrip of Infosys Technologies has shed 12 per cent from Rs 3,750.40 on May 2 to Rs 3,335.25 today. The second loser was Hughes Software which was down 21.2 per cent from Rs 274.90 to Rs 226.75. Satyam Computers dipped by 17 per cent from Rs 263.15 to Rs 223.55. Wipro was down by a mere 0.82 per cent from Rs 1531.45 to Rs 1518.95.

Hrishi Modi, senior investment analyst, ASK-Raymond James, said, "War tensions and fears have led to selling pressure by foreign institutional investors (FIIs). Moreover, IT spending in the US is not likely to increase in the current fiscal. Therefore, customers will start looking at lower-cost substitutes. If these war clouds wither, we could see a rally in the sector."

Even volumes of most of the tech stocks have fallen drastically. Wipro's volume dipped 41 per cent from 1,63,000 shares on May 2 to 96,129 shares today. The volume of Hughes Software scrip was down by 70 per cent from 1,40,000 recorded on May 2 to 40,712 shares today.

Several FIIs have been exiting these stocks duirng the last few days. Analysts pointed out that most of selling by FIIs was due to alignment in their portfolios in line with the recated MSCI index. They added that the shift in the sentiment towards the PSU stocks was also one of the reasons. Encouraged by the attractive bids for the IBP and IPCL stake, PSU counters, in general, have been witnessing a strong buying interest in the recent past.

For the current fiscal, IT companies did give positive guidance on the recovery hopes of the US economy. But with the war clouds looming large, the expectations now seems doubtful.

An analyst said, "Although the sector is running in line with the benchmark index, Infosys and Wipro look vulnerable. Infosys could further come down to the levels of 3,100 and Wipro also looks set to go down."

Mutual funds, in particular, have also been seen trimming their portfolios as they have a huge exposure to IT stocks. On an average, holdings in IT stocks constitute 15-20 per cent of a mutual funds' portfolio. The slide was also due to the reports that the off-shore business prospects of software firms may be affected due to the rising war fears.