IT stocks trading at five-year low

Price to earnings ratio (P/E)

Jun-05Jun-06Jun-072 year agoA year agoCurrent TCS1991.562846.724034.4531.9533.2624.66 Infosys Techn1988.572697.004006.0032.6137.4926.03 Wipro1572.902234.702894.4032.6733.6622.96 Satyam Computer782.831393.801452.2820.9819.3520.09 IT services sector7765.6511248.9416107.8230.5731.5222.71  During the TTM ended June 2006, net profit increased by Rs 2,836 crore while the market value increased by Rs 101,685 crore.  This means for every rupee earned during the TTM of June 2006, the market value increased by Rs 35.85, and for every rupee of net profit earned during the TTM of June 2007, the market value has increased by Re 0.44.  The IT stocks were comfortably placed at a P/E of over 30 times in the past three years with the rupee/dollar exchange rate of around Rs 45-46. The seven per cent appreciation of the rupee during the first quarter of 2007-08 impacted the net profit growth rate and then the market value of IT firms.  The IT sector suffered a twin blow in the last two months -- the rupee continues to appreciate and the US subprime mortgage defaults posed a medium-term risk of IT spending cuts in the banking and financial services industry.  The IT stocks have, overall, underperformed the markets year to date as well as in the last one year. The BSE IT index is down 15.2 per cent in the current calendar year so far against a 7.7 per cent rise in the Sensex, largely on concerns about the appreciating rupee.  Of the top four players, Wipro is down 23.2 per cent, Infosys Technologies is down 17.5 per cent, TCS is down 15.8 per cent and Satyam Computer is down 9.3 per cent.  According to CLSA analysis, investor focus in Indian tech stocks has shifted away from currency to core demand issues, in the backdrop of the subprime crisis.  WNS