IT stocks zoom on back of Re fall

The S&P CNX Nifty Index on the National Stock Exchange added 2 per cent to 4,676.95. The rupee weakened for a third day, falling 0.3 per cent to 42.8950 per dollar at 3:57 p.m. in Mumbai, according to data compiled by Bloomberg. Indian software companies get more than half their sales from the US.

Every percentage fall in the rupee against the dollar props up the operating margins of IT firms by anywhere between 30 and 50 basis points.

Analysts reason that a depreciated rupee, rise in fuel prices, possibly higher inflation rate and higher-than-estimated trade and fiscal deficit indicate that the Indian rupee will not be appreciating in a hurry against the greenback.

"Perception of the rupee remaining under pressure against the dollar and the recent positive economic data in the US led to the rise in the IT stocks," opined a research analyst from a leading brokerage house.

While share prices of IT majors like Infosys, Wipro and Satyam zoomed up by 5.86, 6.25 and 5.47 per cent respectively, Tata Consultancy Services' (TCS') stock price rose by 2.57 per cent.

"For the overall industry, the depreciating rupee, rising inflation and the resultant increase in the fiscal deficit mean a slow economy and weakening of the currency, which spell good news for IT firms. As for TCS, the fact that it is doing free transitional work for some of its large banking customers has affected its market performance," said a senior analyst.

Motilal Oswal's note on the sector upgraded earnings for IT companies like Infosys, TCS, Wipro and Satyam for FY09 and FY10.

The positive earnings outlook was mirrored in Thursday's trading on the bourses. Infosys stock prices were up by 5.86 per cent and closed at Rs 1,870.

Similarly, the Wipro stock closed at Rs 497.30