It’s back to the basics, or to what is referred to as the ‘Old Economy.’ Infrastructure, finance and capital goods sectors have replaced IT companies, for long the darling of investors, as drivers of the stock markets.
With a continuous pressure on the rupee and the outsourcing controversy raging in the US, the IT sector is getting out of fashion. Today, not a single software company has a market capitalisation of Rs 1,00,000 crore. In fact, none of them figure in the list of top 10 in terms of market value. The bellwether, Infosys, figures at No. 14 in terms of market cap, followed by Tata Consultancy Services Ltd, the flagship IT company of the Tata group.
<b1>"There is paradigm shift in the Indian economy, as software and telecom which were the engines of growth, are now going to be replaced by sectors such as infrastructure, finance and capital goods,” said Uday Kotak, executive VC and MD of Kotak Mahindra Bank.
As investors are clamouring back to the ‘Old Economy,’ government-owned companies have taken a dominant position in the Indian stock market. In the list of top 10, only four companies are privately owned.
Take the case of the government-owned MMTC Ltd. In December 2006, its share price was about Rs 1,700. In less than a year, it has reached an astronomical Rs 54,220, making MMTC the number two market cap company in the country with a value of Rs 2,71,102 crore.
DSP Merrill Lynch chairman Hemendra Kothari said the IT companies will have to re-adjust with the changing times, but they will continue to do good provided they move their businesses upscale.
"India is on the cusp of the high growth path and many more sectors would witness exponential growth in the times to come," he said.
With the weakening of the US dollar, against which the rupee has gained 12 per cent this year, all those companies which thrive on cheaper labour costs worked out in dollar terms, such as those in the IT and textile sectors, said Bharat Banka, president and head of corporate finance at the Aditya Vikram Birla Group. "At the same time, the investment in Indian infrastructure is expected to create fresh demand in medium to short term. This would help companies engaged in capital goods, infrastructure, and other related areas," he added.
The Planning commission has scaled up the target for capital expenditure in the 11th Plan (2007-2012) to $500 billion from $320 billion earlier, and is expecting to spend another $989 billion in the 12th Plan. This creates a macro framework for robust growth and consequently reinforces the views of an extended cycle (5 to 10 more years) for engineering and construction companies, experts said.
There is a clear shift in investors' choices, expecrts say. The companies that have control over scarce raw materials or those focusing on domestic market are expected to witness huge bull-runs and drive evaluations.