IT stocks up as rupee falls; Immigration Bill remains a concern

MUMBAI: Investors are flocking to stocks in the IT space on hopes that the on-going depreciation in rupee will benefit the IT technology exporters.

The rupee fell around 1.5 per cent in early trade today, its biggest single-day loss since June 26, as the robust non-US farm payrolls data led to US dollar outflows from global markets.

At 12:45 p.m.; HCL Tech was up 2.49 per cent, Hexaware Technologies gained 2.49 per cent, Wipro was up 1.74 per cent, Infosys moved up 0.71 per cent and Wipro was 1.74 per cent higher.

However, the rupee recovered from day's low on suspected intervention from the Reserve Bank of India. The partially convertible rupee was at 61.08, down 85 paise against its previous close. It had fallen sharply to an all-time low of 61.20 per dollar.

One per cent depreciation in rupee benefits IT companies on an average by about 50 bps when it comes to operating profit margins.

"The focus has to be to improve the quality of the portfolio and gradually increase weightage to software, pharmaceuticals, maybe even look at auto ancillaries and some of the other export oriented sectors because rupee at 60.5 or plus is certainly going to be extremely positive," said Dipan Mehta, Member BSE and NSE to ET Now.

"Maybe in the short term, the benefits may not be visible but going forward these industries will benefit not only from higher operating profit margins but better off take, higher demand on account of rupee depreciation so one should take advantage of such conditions and kind of re-compose the entire portfolio," he added.

Pick-up in US economy may also improve IT spends and that may augur well for Indian companies.

"IT spends in the near term probably should start looking up and more of the discretionary spends should come in a few quarters down the line. So if that were to happen, then clearly IT stocks will benefit led by both operational as well as the currency benefit," said Taher Badshah, Senior Vice President & Co-Head Equities, Motilal Oswal Asset Management Company to ET Now.

"This should be reasonably sufficient to offset some of the downside with regard to visa cost or probably the immigration laws. So we are reasonably positive on the IT sector going forward," he added.

However, factors like the US Immigration Bill and cross currency impact are arresting the upmove in IT sector.

"The one big reason for that (IT companies not moving much despite rupee depreciation) is the impending immigration bill in the US, which has already been passed by the senate and has to go to the house very shortly. There is a lot of fear and there is a lot of nervousness on that count," said Vibhav Kapoor, Group Chief Investment Officer, IL&FS.

"If you take a structural call on IT, the headwind still persists with the developments that will take place on the Immigration Bill and its implication on the earnings of these companies. Not to leave aside the cross currency impact that the companies might face even in this quarter. It might take some sheen off the rupee depreciation that has happened," said Mayuresh Joshi, VP, Institution, Angel Broking to ET Now.

The BSE IT Index has gained 1.72 per cent and 1.99 per cent in the past one week and month respectively.