Infosys shadow on tech scrips

IT bellwether Infosys Technologies' cut in earnings forecast for the year triggered a collapse in the IT indices after investors sold off shares in all major software counters, including Tata Consultancy Services, Wipro and Satyam.

The BSE IT Index, which tracks the movement in IT stocks, dived by 3.34 per cent (168.22 points), the biggest single day fall in the index in several months, on fears that other software companies including Tata Consultancy Services, Wipro and Satyam too would reduce their earnings guidance.

The slide in IT stocks continued on the National Stock Exchange with the CNX IT Index falling by 2.54 per cent, pulling the benchmark NSE-50 Index down by half a per cent.

The rupee, which appreciated by seven per cent in Q1 "� the biggest gain in more than three decades "�, is likely to make a dent in earnings as a large portion of the earnings of leading IT companies comes from the US markets, say analysts.

The Sensex closed at 14,910.62, down 0.66 per cent (99.26 points), while the broader NSE-50 slid 0.4 per cent (18.90 points), to close below the 4,400 mark at 4,387.15.

Infosys shed 4.5 per cent or Rs 90.25 to Rs 1,929.7 after the company lowered its annual sales to Rs 162.38 billion, compared to the earlier estimate of Rs 170.38 billion. Similarly, the company cut its net income on a share to Rs 78.2-79, from the April forecast of Rs 80.29-81.58.

The negative news flow from Infosys spilled over to the other software stocks.

TCS, India's largest software services company, shed 3.3 per cent or Rs 39.6 to Rs 1,146.9, while Wipro, the third biggest, dropped 2 per cent (Rs 10.5) to Rs 510.25. Satyam Computer Services, the fourth ranked, wiped off 3.3 per cent (Rs 16.3) to Rs 480.85.

The four software stocks were the biggest losers of the 30 companies that comprise the Sensex. Infosys margins fell by a significant 300 basis points due to three major factors "� rupee appreciation, salary hikes (12-15 per cent offshore, 6 per cent onsite) and visa costs, said Harit Shah, IT and telecom analyst with Angel Broking.

Despite this, foreign brokerage Macquarie, in a report released on Wednesday, maintained that India would continue to sustain its competitive position in IT till 2015 as Indian offshore services would still provide a 70 per cent cost reduction value proposition to US corporations.

The report does not discount the effects of rupee appreciation and wage inflation, stating that a worst case scenario was likely to put cost reduction value proposition to 62 per cent in 2015 while a best case scenario would see it standing at 70 per cent in the same year.