IT shares extend rally, TCS, HCL Tech at new high

BSE IT index has surged 28% in past two months as compared to 4.2% fall in S&P BSE Sensex.

Shares of information technology (IT) companies continue at their upward march on expectation of rupee depreciation will benefit margins of IT services companies.

Most of the frontline stocks such as Tata Consultancy Services (TCS) and HCL Technologies are trading at their record high, while Wipro, Tech Mahindra and Infosys are quoting at their 52-week high on the BSE.

In past two months, the BSE IT index has outperformed the market by surging 28% after the Indian rupee (INR) depreciated by nearly 13% against the US dollar (USD). The benchmark S&P BSE Sensex has dipped 4.2% during the same period.

Rupee depreciation theoretically benefits margins of IT companies as a large proportion of costs are in rupees, while revenues are largely in foreign currency.

'Given the sharp depreciation in the INR vs USD from 60 levels last quarter to current rates of 68, we think avenues for reinvestment will progressively reduce and margins/ earnings will show improvement, even for companies that did not show benefits in the last leg,'” said Nomura Financial Advisory and Securities in a note.