FIIs may churn IT stocks to make room for TCS

TCS PUBLIC OFFER

Foreign institutional investors' (FIIs) investment in domestic software companies could increase by around Rs 3,800 crore after the Tata Consultancy Services (TCS) public issue in mid-July.

As on June 10, the market value of FII investments in software companies is estimated at Rs 25,550 crore. After the proposed subscription, FII holding in Indian software companies will increase to Rs 29,350 crore.

TCS is offering 63.705 million shares of Rs 1 each at an estimated Rs 1,000 a share. FIIs, who are eligible to subscribe to 60 per cent of the offer size, can accordingly subscribe to 38.22 million shares of Re 1 each. That means FII investment in TCS at an estimated issue price of Rs 1,000 a share will be Rs 3,822 crore.

Much depends, of course, on whether FIIs get in fresh money to subscribe to the TCS issue, or whether they sell their holdings in other software companies to accommodate their investment in TCS.

If they opt for the latter course, stocks such as Infosys Technologies, Wipro and Satyam Computers could get affected.

The market has already started reflecting this concern, with almost all software stocks closing lower on Friday. The BSE IT index fell 2.4 per cent to 1759.32 on Friday.

Infosys Technologies declined by 3.08 per cent to Rs 5110.60, Wipro declined by 2.87 per cent to Rs 1479.75, Satyam Computer was down 2.79 per cent to Rs 301 and HCL Technologies fell 3.34 per cent to Rs 300.60.

Interestingly, FIIs have invested 87 per cent of their total investment of Rs 25,550 crore in the IT sector in five stocks.

FIIs share in Infosys Technologies is valued at Rs 5,018 crore, followed by their investment in Wipro of Rs 1,368 crore, HCL Technologies Rs 878 crore and Digital GlobalSoft Rs 695 crore.

If FIIs invest Rs 3,800 crore in TCS public issue, then TCS will rank third in the FIIs' software investments list.

More importantly, if FIIs decide to churn their portfolios to accommodate the TCS issue, it is these five stocks that will bear the brunt of the selling.