IT stocks fall as rupee recovers on reform push

BANGALORE: Shares of information technology companies, which depend on a strong dollar to beat market expectations, fell for the second consecutive day after the rupee rose in response to the government's latest reforms push.

Government's decision to allow foreign direct investment in retail and aviation sectors prompted fund managers to shuffle their investment portfolio to include stocks of fast moving consumer goods (FMCG) companies and airlines, pushing volatile IT stocks down in terms of priority.

Over the past two days, shares of TCS, country's largest software services exporter fell as much as 8% on the Bombay Stock Exchange while shares of Wipro, the third largest firms fell 6%.

Rupee closed at 54 per dollar on Tuesday. HSBC analysts estimate the local currency to remain around Rs 52 per US dollar by December as against the earlier expectation of Rs 57. An appreciating rupee limits potential for translational gains for larger IT companies who get more than half of their revenues in dollars.

"The market is seeing a shift in portfolio, wherein the major investment is going towards FMCG and retail (stocks). Also IT sector is now downgraded as sensitive," said Rikesh Parikh, vice president, markets strategy and equities at Mumbai based brokerage Motilal Oswal Securities.

Some of IT companies whose shares fell on Monday, including Infosys and HCL Technologies and Hexaware, recovered marginally on Tuesday. Infosys fell nearly 3% on Monday. However, following a research note from Bank of America-Merrill Lynch that recommended investing in Infosys shares, stock gained 1.5% on Tuesday.

"Government reforms have impacted the stock environment," Pankaj Pandey, who heads equity research at investment advisory ICICI Direct. "Markets seem to be skewed in favour of select beta stocks and that's one reason for the slowdown in IT stocks."