TCS leads crash in technology stocks

Information technology stocks, led by Tata Consultancy Services, were on a crash course on the Bombay Stock Exchange (BSE) today, even as the benchmark Sensitive Index went up 44 points.

The BSE IT Index fell more than 4 per cent. TCS, which announced disappointing results yesterday, plunged 10.63 per cent to Rs 887.05 a share "� the steepest intra-day fall for the country's largest software services company since its market debut in 2004.

Investors reacted to news that three of the company's top five clients in the banking and financial services sector have deferred contracts. This deepened investors' concerns about the slowdown in the US, the sector's largest market.

The IT index closed at 3930.47 points, down 4.32 per cent or 177.67 points. Other large IT companies too ended the day in the red. Wipro was down 5.06 per cent to Rs 430.7 a share, Tech Mahindra 4.05 per cent to Rs 845.55, HCL Technologies 3.96 per cent to Rs 263.4, Satyam Computers 5.03 per cent to Rs 435.85 and Infosys Technologies 2.81 per cent to Rs 1598.9.

While investors are making a beeline to sell IT stocks, market experts said the sector will increasingly become a defensive play within portfolios. When Infosys Technologies declared its results on April 15, TCS rose more than the Bangalore-based IT company because of high market expectations.

Except for Satyam Computer Services, which posted 7.7 per cent net profit growth quarter-on-quarter, all the other tier-I IT firms (Infosys, HCL and Wipro) reported poor sequential growth numbers. The three firms have recorded low sequential growth in revenue as well.

"The frontline IT companies have been able to negotiate through these tough times successfully. These stocks have been beaten down to such a level that the downside risk in them is capped and hence they will be good defensive plays," said Gaurav Dua, head of research, Sharekhan.

In fact, a lot of retail investors have bought into these stocks because they are "stalwarts" and not because of valuations or market conditions.

Some of them are wondering what to do with the stock that they purchased at a 52-week high because analysts feel that these stocks may not touch those levels any time soon.

After the "cautious" stance of TCS Chief Executive Officer S Ramadorai yesterday, domestic and foreign broking houses have revised their estimates for TCS. Wage increases and problems with some clients may lead to a muted performance in the current quarter, said Vipin Khare , an analyst at Morgan Stanley, who reduced his rating on the stock to "equal-weight" from "overweight."