Sensex surges 242 points as techs rally on currency decline, hopes of end to RBI rate increases.
Shares of information technology (IT) companies outperformed the benchmark indices on Wednesday as the rupee weakened to touch a two-year low against the dollar. The Indian currency dipped to 48.01 against the dollar during the day, before settling at 47.65, a 16-month low.
A weak rupee helps boost the revenues of IT companies in rupee terms, as a majority of these companies derive revenues from abroad. IT stocks have been under pressure for some time, on the back or uncertainty in the Western world.
On Wednday, the Bombay Stock Exchange benchmark, the Sensex, gained 1.5 per cent or 242.16 points to close at 16,709.60. Among the sectoral indices, the IT index topped the list, as it gained 4.3 per cent or 206.61 to close at 5,039.74 against the previous close.
Infosys, one of the most beaten-down IT stocks, emerged an outperformer among its peer group. On the BSE, its shares galloped 5.8 per cent or Rs 128.65 to close the day at Rs 2,353.05. It was followed by Wipro and HCL Technologies, whose stocks closed 4.34 per cent and 4.25 per cent higher, respectively. Tata Consultancy Services firmed up 2.2 per cent or Rs 22.25 a share, to close at Rs 1,017.05. The shares of Mphasis and Oracle gained between 1.5 and two per cent.
Rohit Kumar Anand, industry analyst at PINC Reserach, said, “Today’s movement was a short-term movement. IT stocks have already corrected. I believe the share prices of IT companies should see further upside from here. However, volumes in the industry are expected to go down but the exchange rates are positive. We have to see how these factors balance out for the sector.”
During the current financial year, the IT index has lost a fourth of its value till date, while the benchmark indices saw erosion of 14 per cent during the same period. The shares of Infosys have lost 23 per cent and TCS 14 per cent. Those of Wipro and HCL were down 28 per cent and 17 per cent, respectively.
TECH STOCKS UP
In general, export-driven technology stocks surged due to the hopes of a weaker rupee boosting margins, helped by expectations that the Reserve Bank of India (RBI) was near the end of its rate raising cycle.
However, analysts warned the gains were unlikely to be sustained in the near term, on unrelenting worries about the euro zone debt crisis and the impact of the domestic rate rises on profits of local companies.
“We believe interest rates are closer to peaking out and since markets tend to look ahead, investors are now selectively picking up rate-sensitive stocks like banks,” said Anshu Kapoor, private wealth head at Edelweiss Global Wealth Management.
India’s inflation climbed to its highest in more than a year as prices of food and manufactured goods surged, reinforcing the case for another rate rise, despite weakening growth and a worsening global outlook. Many analysts believe a rate increase on Friday will be the last one by the central bank before it pauses in its monetary tightening cycle. The RBI has raised interest rates 11 times in 18 months, stoking worries about the impact of rising borrowing costs and slowing economic growth on the profitability and margins of companies in Asia’s third-largest economy.
Besides surging interest rates, fears of America slipping back into recession and the euro zone debt crisis, which have seen Greece, Ireland and Portugal forced to take bailouts, have roiled Indian shares in recent weeks. “Overall, the market continues to be in a bearish trend and there are significant headwinds. In a bearish market, you should not read too much into a pullback by three to five per cent,” Kapoor of Edelweiss said.
