Infosys Sink As Rupee Hits 11-Month High

HCL Tech shares fell 7 per cent, while Tata Consultancy Services slumped 6 per cent on Monday tracking the sharp rise in the rupee and a churn in favour of high beta cyclicals across portfolios. The BSE IT index fell as much as 5 per cent as compared to modest gains in broader markets.

TCS dropped below its 200 day moving average (DMA), a long-term support, for the first time since December 2012. Among other big IT stocks, Wipro traded with over 5.5 per cent losses and Infosys was down nearly 5 per cent.

Bhavin Shah, CEO of Equirus Securities told NDTV that an appreciating rupee has hurt IT stocks.

“The rupee’s average level in 2013-14 was 62 per dollar. Already, it is down a few percentage points and that will have an impact on margins,” he added.

The rupee is trading at an 11-month high on expectations of continued robust foreign buying in domestic shares and debt after Narendra Modi-led BJP swept the elections. The partially convertible currency posted its best weekly gains in eight months last week as Mr Modi won an overwhelming majority in elections.

The rupee rose to 58.38 per dollar today.

Foreign investors have poured more than $16 billion (over Rs. 1 lakh crore) into Indian stocks and bonds in the past six months since Mr Modi was announced as the BJP’s prime ministerial candidate.

Exporters such as IT firms that earn a majority of their revenues in dollars are likely to see a dip in their profitability if the rupee continues to rise against the greenback.

Concerns about lower-than-expected growth in the current fiscal have also led to a selloff in IT stocks.

“Both Infosys and Wipro are likely to grow at 10 per cent or less in 2014-15. In that sense, there is still some premium on these IT stocks. Non IT stocks are also expensive, but investor preference is for domestic story,” Mr Shah said.

Investors have made a shift from defensives such as IT and phrama to high beta cyclicals such as banks and infrastructure on hopes that an economic rebound is imminent after elections. The National Stock Exchange’s IT index is down over 12 per cent over the last three months, while the Bank Nifty is up 47 per cent over the same period.

“Most of the domestic fund managers have turned underweight on IT,” Mr Shah said.

As of 11.40 a.m., HCL Tech traded 6.3 per cent lower at Rs. 1,280, while TCS was down 5.2 per cent to Rs. 2,046. Infosys traded at Rs. 3,019, down 5 per cent, while Wipro fell 4.7 per cent to Rs. 479.