I do not even remember the last time information technology stocks led a 400-point rally in the market. It has been that long. A bounce had to happen; it just needed a trigger, which the external commercial borrowing restrictions provided on Tuesday evening. Having been bottled up for so long, this rally should not be a flash in the pan. In the near term at least, one can certainly build a case for some more upside for technology stocks. Not to new highs or anything but a meaningful 10 per cent kind of upside should not be too difficult to eke out. Particularly if the rupee depreciates to sub-41 levels and stays there for a while.
The medium- and long-term outlook though is a different matter altogether. It would take much more than ECB curbs to keep the rupee under 40 to the dollar for a very long time. All fundamental pointers suggest that regardless of intervention, the rupee is headed higher over time. India will continue to attract flows, albeit through other windows, and the dollar itself seems to be headed just one way, down. The ECB move then, is merely postponing the inevitable. If one agrees with this premise then a good bounce in infotech stocks may be the right opportunity to take your money and run. It is certainly a debatable point as it involves turning one’s back on some of India’s finest run companies. Worth considering though.
Spurred by infotech stocks, the Nifty cruised to a very bullish close on Wednesday. Unless there is some global setback again, this upmove should have some more steam. It would be premature though to conclude that the global volatility is behind us. Yes, Ben Bernanke may not be worried about a recession just yet but it is entirely possible that the Fed has got it wrong. It is a long summer ahead, potentially with many twists and turns.
Closer home, the controversial Puravankara issue just about scraped through. It was subscribed twice with most bids at Rs 400. It would be a pity though if the shadow cast by this IPO leads to a poor listing for Omaxe on Thursday. Omaxe did all the right things for its investors and deserves to trade well above Rs 400 post-listing. Fundamentals warrant that and it deserves to be lauded for not making the same mistake as its peer, Puravankara.
(The writer is Executive Editor, CNBC-TV 18)