A signal of confidence

Tata Consultancy Services (TCS) Ltd's decision to go in for its initial public offering in Friday's nervous market has come as a pleasant surprise.

It is confirmation that the jitteriness in the stock market is persisting for too long, and a signal that the Tata group feels that it will get a fair valuation from the market.

The decision is, therefore, a vote of confidence in the market, a welcome signal of reassurance. To be sure, the Sensex fell 112 points on Friday. And there is no dearth of reasons for concern "" pessimists will say that the huge offering will lead to selling of other scrips, as investors try to raise money for subscribing to the TCS issue.

They have already started talking of investors churning other software stocks, and have pointed to the fall in tech stocks on Friday as proof. And bears will lose no time in playing on these negative sentiments to push down the market.

The question is, will the TCS issue succeed in bringing new money into the market, or will it merely divert funds from existing investments? The ONGC issue is of course a positive precedent, but then market conditions were very different at the time of that issue.

Nevertheless, TCS' decision is not much of a surprise. First, in spite of the carnage in the market in recent weeks, tech stocks have stood up well to the selling pressure.

In fact, funds have rotated into software stocks, perceiving them to be a safe haven, protected from the winds of change buffeting domestic policy. Tech stocks have gained because the industry is perceived to be immune to government tinkering.

The Infosys stock, for example, has remained at more or less the same level for the last three months. The BSE IT index has been flat in the past month, in contrast to the Sensex, which has fallen by 9.25 per cent.

Moreover, the issue will be made after the Budget, which could provide an opportunity for improvement in market sentiment. Also, fund managers are underweight on technology, and the TCS issue could be an occasion to increase the weight given to the sector.

That is particularly true because, as the furore over outsourcing dies down, business opportunities in the sector are likely to multiply. As a matter of fact, even though several of the main IT scrips fell on Friday, their fall was matched by the fall in the overall market.

Analysts anticipate no difficulty in the TCS issue going through, for it's virtually inconceivable that investors will choose to ignore the market leader in a sector where there is so much action. Recall how FII inflows went up substantially in order to subscribe to the ONGC issue.

It remains to be seen, however, whether retail participation too will receive a boost from the issue. While small investors have undoubtedly been singed by the recent fall in the market, it is also true that many recent issues are still quoting at a decent premium to their issue price.

Much will depend therefore on how the TCS issue is priced, but the Tatas have done well to float the issue when the market is not over-heated. It is possible therefore that the TCS float will in course of time be seen as the first step in the regaining of investor confidence.