Infotech stocks rally on dollar curbs, lift Sensex
The BSE Sensex on Wednesday surged by more than 375 points on heavy buying by funds in heavy-weight stocks led by IT and oil stocks, report Venkatesh Ganesh and MC Vaijayanthi.business Updated: Aug 08, 2007 22:03 IST
Information technology stocks got a sentimental push rather than a lasting fundamental one after the imposition of restrictions on Indian companies bringing in money out of external commercial borrowings (ECB).
Frontline infotech stocks rallied smartly, taking the BSE Sensex up by 375.21 points (2.51 per cent) to 15,307 and the BSE IT Index was the top performer with a 4.1 per cent upswing. Infosys was up 6 per cent intra-day and closed with a 4.73 per cent gain followed by the 4.13 per cent posted by TCS. The Wipro scrip was up 3.6 per cent and Satyam 3.52 per cent.
The restrictions in the use of ECBs will not have much of a long-term impact and will help only in the short term, feel analysts. “It will not take the rupee to the 44-45 level,” said Salil Ravindran, head of investor relations at i-gate. He added that the curbs imposed were a temporary measure that could possibly help the rupee stay at 40 to a dollar.
"We expect the rupee to appreciate to 38 per dollar in the next year or so and have taken adequate measures," said V Balasubramanian, CFO, Megasoft.
Analysts said information technology stocks were reasonably valued at current levels and the government move did not warrant a re-rating of the sector. On average, a 1 per cent rise in the rupee dents the margins of infotech export firms by 30-50 basis points.
It is estimated that last year, the country received around $25 billion in foreign investment and in the last one month it would have received around $5 billion. "The Indian economy cannot absorb such a large infusion of external liquidity," said V Balakrishnan, CFO, Infosys. He added that his was affecting the interest regime in the country.
The central bank has a window open in the form of prior approval for genuine corporate requirements. "There will be knee-jerk reaction in the currency markets due to this new rule but we have to see how the rupee is going to behave in the medium to long term," he said. The rupee fell by 1 per cent to 40.83 a dollar in opening trade on Wednesday but recovered to close at 40.52.
The banking sector and the domestic bond market are expected to benefit from the curbs on ECBs. “The India growth story is intact, and the rupee is bound to appreciate. But export-oriented companies that use ECBs to boost capital expenditure in India will be hit," said Y M Deosthalee, CFO, Larsen &Toubro.