| Investors pruning risky exposures as firm rupee can hurt them: Analysts. |
K.S. Badri Narayanan
Chennai, Jan. 8
The rising rupee seems to have been a trigger for foreign institutional investors to sell many small-cap information technology stocks, going by the data on bulk and block deals available with the exchanges.
Among the stocks sold were Cranes Software, Kaashyap Technologies and Northgate Technologies.
Citigroup, through OrbiTech, has sold shares of Polaris Software while Nortel Networks has cut stake in Sasken Communications.
The foreign institutional investors include Macquarie Bank, Deutsche Securities, TAIB Securities and Swiss Finance Corporation.
According to analysts, the rising rupee would put strong pressure on IT companies, especially small ones.
The rupee has breached the 46 mark and gained 1.5 per cent against the dollar since January 1, and closed at 45.8 on Friday.
"We expect the positive demand impetus witnessed by Indian IT services to extend through 3QFY10E. We expect companies to report strong revenue growth ahead of the guidance. However, EBITDA margins are likely to see a downswing due to sharp rupee appreciation (average: -3.6 per cent QoQ) and wage hikes," said a research report from Ambit Capital.
Foreign institutional investors were net buyers to the tune of Rs 3,667 crore in 2010 in the secondary market, SEBI data says.
According to an Anand Rathi Securities report: "We expect IT service companies to be more optimistic regarding the macro-environment compared to the stance in the previous few quarters. While 2010 IT budgets are likely to be flat with a positive bias, managements might not provide significant clarity on them."
While the BSE Sensex and the NSE's S&P CNX Nifty gained 0.4 per cent each, the BSE IT index tumbled about 4.4 per cent since January 1.
According to Mr Arun Kejriwal of KRIS Securities, FIIs are cutting exposures that they feel are risky at this point of time.
"With the equity class giving out handsome profits in 2009, they first want to cut their exposure in tier-3 IT stocks, as appreciating rupee could hurt them more."
A recent India Infoline report said: "Margin is expected to contract by 100-300 basis points quarter-on-quarter for most (IT companies) due to multiple headwinds while the quantum of hedges would determine individual profit performance."
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