A rolling stone gathers no moss, but a rolling rupee, of late, has gathered a lot of attention. And the biggest beneficiary of the depreciating rupee seems to be, no prices for guessing, the technology sector. The once jettisoned IT stocks are back in vogue.
Since April of this year, the IT stocks have cropped up smartly, and that too at a time when the Sensex sob story was on in full force. During this time, people stood up to take notice of what the Information and Technology companies had to say. And the Indian rupee depreciating against the greenback by more than 8 per cent this year, was more than enough to fire the IT stocks into the stratosphere.
The biggest gainer has been Infosys Technologies, gaining over 30 per cent to touch the Rs. 1,900 levels from the lows of Rs. 1,400. Following it is TCS, which jumped 12 per cent from Rs. 832 to Rs. 932 after having touched the Rs. 1,000 levels. Similarly, Wipro went up by 18 per cent to reach Rs. 481 from Rs. 400 and having had touched the Rs. 500 levels as well. The case with other technology companies like Satyam and HCL has been quite similar too.
Consequently, fund houses also changed their position as pertaining to the technology stocks. The number of funds that had Infosys stood at 139 in April, as against 128 a month ago. Fund exposure to Wipro and Tata Consultancy remained almost the same, while exposure to Satyam witnessed a quantum leap. The holding went from 89 schemes in March to 109 in April.
At the core of this issue is the FII inflow and rupee depreciation. The FII inflow into the Indian market has slowed down considerably. Figures says it all; FIIs sold equities worth Rs 12,764 crore for January 01-May 22, as compared to net buyers of Rs 15674 crore, for the same time period a year ago. As far as the rupee is concerned, the appreciation is here to stay, feels experts. For the Reserve Bank of India, which was on a dollar buying spree for a long time to contain appreciation of the rupee, this March was different. After nearly 27 months, the central bank sold about $1.5 billion in March 2008.
Buoyed by a weak rupee and extension of tax holiday for IT companies by one more year to March 2010, the outlook on Technology companies looks favourable. Infosys has given a guidance of 16.3-18.3 per cent growth in EPS to Rs 92.32-93.92 for the fiscal year ending March 2009. Satyam has set a guidance of 24-26 per cent growth in overall revenues and 17-19 per cent growth in EPS for 2008-09. The best part of this guidance is the conversion rate based on which the guidance has been arrived, which is 1 USD=Rs 40.2, and the rupee is currently flirting with the dollar at the Rs. 42.50-43.00 levels.
Do you get it? OK, we'll make it easier for you, every 1 per cent appreciation/depreciation in the rupee leads to a 30-50 basis points impact on the margins of IT companies… Well, start counting your pennies!!!