Infosys pulls down IT stocks, Sensex
Infosys, which had the second highest weightage on the Sensex, was pushed down to the third spot on Wednesday by ICICI Bank as its stock fell by 4.4 per cent to Rs 1,929, hit by its forecast that sparked concerns that a strong rupee will weight on its profits and profitability.
The Infosys effect pervaded the entire technology sector and the market fell sharply on opening, with major indices falling by over a percentage point. But the markets recovered from its day’s lows swiftly and were not bogged down by Infosys lowering its earnings guidance in rupee terms for the full year.
Has Infosys then lost its status as a bellwether stock? Yes, says Ajit Sanghvi, director, MSS Securities. He expects technology stocks to underperform in the next two quarters. “It would take another quarter to confirm it,” said Arun Kejriwal of Kris Research.
While the Sensex moved up from 10,614 on July 12, 2006 to 14,910.62 on Wednesday, Infosys has moved down from its 52-week high of Rs. 2,439 on July 12 last year to Rs 1,929. “It is not just Infosys or Nasdaq that has lost relevance to the overall market move. There is no one particular stock or sector that is moving the markets today,” commented an analyst referring to the times when a fall in Nasdaq index or Infosys would drag the whole market down.
“Of late, the IT pack has been losing its sheen and it may continue for a while. That is not due to any fundamental reason, but rather due to rupee appreciation and companies are doing well to overcome that,” says Sorbh Gupta, technology analyst at Pranav Securities who is positive on Infosys stock. But the fear of further rupee appreciation denting IT export firms’ profit margins remains, said Kejriwal. Analysts have taken this cue from Infosys itself as it announced doubling of its currency hedging for the next two quarters. If the markets rally ahead, it would definitely by pass IT stocks and only a fall in rupee can reverse the trend, say analysts.