IT counters plummet on CLSA downgrade

A recent CLSA report downgrading technology stocks triggered selling across IT counters in an already nervous market on Wednesday, dealers said.

While the Sensex sank 2.63 per cent to 11355.73, the BSE IT index performance was even worse, tanking 3.66 per cent to 3961.09.

Key frontline stocks were down - the biggest loser was TCS which was down 5.94 per cent to Rs 1783.10. Other major losers were MphasiS BFL (down 5.09 per cent to Rs 203.20), Patni Computers (down 5.06 per cent to Rs 427.5), Satyam Computers (down 4.46 per cent to Rs 798.5), Wipro (down 3.7 per cent to Rs 515.85) and Infosys Technologies (down 3.5 per cent to Rs 3075.3).

A report by CLSA released on April 4, downgraded all IT stocks citing that the 'margin of safety' in Indian IT was receding.

The report highlighted that valuations were not cheap considering that earnings upsides were limited and hiccups were likely to increase.

"...the favourable equilibrium backed by superlative volume growth is shifting away. The cost versus growth equation is worsening, wage inflation risks are rising and more competition is expected from global majors and captives" the report said.

CLSA has downgraded Satyam Computer from buy to underperform, as it is most susceptible to the rising bar on wage inflation.

It had downgraded Patni Computers in mid-Feb on the back of execution worries. The report further stated TCS is facing multiple integration and margin challenges ahead, as new entities join the fold March 06 quarter onwards.

Wednesday's weakness in tech stocks also follows the selloff in global markets yesterday. "The fall in tech stocks was triggered by weak ADR prices, recent downgrade by a leading foreign brokerage and nervousness ahead of Infosys results tomorrow," said Deepak Jasani, head of retail research, HDFC Securities. IT stocks were also impacted because of the rupee appreciation, although marginally.