Investors rushed to grab information technology shares on Wednesday, emboldened by the government's decision on Tuesday to tighten external commercial borrowing rules with an aim to check the rupee's appreciation.
Market watchers expect these shares to do well in the short term, as investors had factored in too much pessimism at current levels, fearing a further rise in the rupee against the dollar. However, they remain cautious in their long-term outlook on the sector as the rupee is expected to strengthen over the longer run.
"In the short term, major beneficiaries would be companies, which have a near-term hedging strategy like Infosys, which hedges its net dollar inflow for the next two quarters; this stands at $925 million as of June end," Sushil Finance IT analyst Parikshit Kandpal said.
"TCS hedges for beyond one year and its hedged position as of June end is $2.5 billion. This means there is a window of opportunity and headroom for Infosys to realign and hedge the net dollar inflows for next 6-7 months in the context of weakening rupee in the short term, while TCS doesn't have much of headroom, so same will follow for other companies," he said.
Investors have been fleeing technology counters since March this year following the steady rise in the rupee against the dollar.
Karvy Stock Broking vice-president Ambareesh Baliga said, "The market reactions to IT stocks was knee-jerk. In the medium term, we do not expect the rupee to appreciate vis-à-vis the dollar as the government would step in as it is hurting exports. But in the long term this is not sustainable as the dollar is weak against other currencies so it would not be possible to hold it against the rupee too."
Some industry players share Mr Baliga's view that the rupee can only strengthen in the long run. The rupee on Wednesday dropped 40 paise in response to the tightening of ECB norms. Mastek group-CFO & director-finance RS Desikan said Wednesday's weakening of the rupee against the dollar was more of short-term trend.
"In the long term, unless the trade deficit of the US economy comes down significantly, the dollar will continue to weaken. Over a 24-month period I see the rupee strengthening against the dollar, unless of course, the RBI changes its strategy and starts intervening in the market," Mr Desikan said.
However, he added that most IT firms were better prepared for a stronger rupee in the current quarter, as compared to the last quarter. "In April-May, very few of them were prepared for such a sharp appreciation in the rupee. Most progressive and pro-active companies are taking measures to improve productivity and are prepared for a stronger rupee," he added.
But, the government's move is likely to keep the rupee in check over the next 6-9 months, feel some players. I-flex Solutions vice-chairman Deepak Ghaisas said the move would help to contain the steep appreciation of the rupee.
"I don't think it is a knee-jerk reaction. Earlier, the expectation was that by March 2008, the rupee would be at Rs 36-37 against the dollar. Now I expect it to be at Rs 41-42. One-year forward premiums have also gone up. This means the market does not expect the rupee to appreciate as much," Mr Ghaisas said.
Market watchers expect these shares to do well in the short term, as investors had factored in too much pessimism at current levels, fearing a further rise in the rupee against the dollar. However, they remain cautious in their long-term outlook on the sector as the rupee is expected to strengthen over the longer run.
"In the short term, major beneficiaries would be companies, which have a near-term hedging strategy like Infosys, which hedges its net dollar inflow for the next two quarters; this stands at $925 million as of June end," Sushil Finance IT analyst Parikshit Kandpal said.
"TCS hedges for beyond one year and its hedged position as of June end is $2.5 billion. This means there is a window of opportunity and headroom for Infosys to realign and hedge the net dollar inflows for next 6-7 months in the context of weakening rupee in the short term, while TCS doesn't have much of headroom, so same will follow for other companies," he said.
Investors have been fleeing technology counters since March this year following the steady rise in the rupee against the dollar.
Karvy Stock Broking vice-president Ambareesh Baliga said, "The market reactions to IT stocks was knee-jerk. In the medium term, we do not expect the rupee to appreciate vis-à-vis the dollar as the government would step in as it is hurting exports. But in the long term this is not sustainable as the dollar is weak against other currencies so it would not be possible to hold it against the rupee too."
Some industry players share Mr Baliga's view that the rupee can only strengthen in the long run. The rupee on Wednesday dropped 40 paise in response to the tightening of ECB norms. Mastek group-CFO & director-finance RS Desikan said Wednesday's weakening of the rupee against the dollar was more of short-term trend.
"In the long term, unless the trade deficit of the US economy comes down significantly, the dollar will continue to weaken. Over a 24-month period I see the rupee strengthening against the dollar, unless of course, the RBI changes its strategy and starts intervening in the market," Mr Desikan said.
However, he added that most IT firms were better prepared for a stronger rupee in the current quarter, as compared to the last quarter. "In April-May, very few of them were prepared for such a sharp appreciation in the rupee. Most progressive and pro-active companies are taking measures to improve productivity and are prepared for a stronger rupee," he added.
But, the government's move is likely to keep the rupee in check over the next 6-9 months, feel some players. I-flex Solutions vice-chairman Deepak Ghaisas said the move would help to contain the steep appreciation of the rupee.
"I don't think it is a knee-jerk reaction. Earlier, the expectation was that by March 2008, the rupee would be at Rs 36-37 against the dollar. Now I expect it to be at Rs 41-42. One-year forward premiums have also gone up. This means the market does not expect the rupee to appreciate as much," Mr Ghaisas said.
No comments:
Post a Comment