IT stocks outperformed the broader markets, led by Wipro and Infosys, which traded at the top of the 50-share Nifty. Other frontline IT stocks - HCL Tech, and TCS - also traded with gains in a weak market Thursday.
At 11.45 a.m., the BSE IT index traded 2 per cent higher, while the BSE Sensex traded flat at 17,318. Wipro was the top Nifty gainer, up 3.3 per cent at Rs 374, while Infosys gained 2.9 per cent at Rs 2,406.75.
Here are the reasons why IT stocks have witnessed buying interest today.
1) India's IT sector gets over 75 per cent of its revenue from the United States and Europe. A slowdown in the US and the Eurozone debt crisis has hit business sentiments across the world. Infosys, which is the biggest player in high margin consulting vertical, has been the worst hit as big corporates cut down on their discretionary spend. However, there are expectations that central banks in the US and Europe will respond to the crisis with more liquidity. The European Central Bank is likely to unveil a bond intervention plan after Thursday's policy meeting, sources told Reuters.
2) The US Federal Reserve might also announce additional monetary stimulus after its meeting on September 12-13. Fed Chairman Ben Bernanke last week kept the door open for further easing, saying the Fed was ready to act if needed.
3) The rupee hit a three-week low against the dollar. A weak rupee helps exporters who earn their revenue in dollars. Though most IT firms hedge their currency exposure, a weak rupee is seen as a sentimental positive.
4) The HSBC Purchasing Managers' Index for services expanded at the fastest pace in six months in August. That suggested the worst of a growth slowdown that began in the quarter to June last year may be over.
5) Infosys, India's second biggest software services outsourcer saw the biggest gains (in percentage terms) in over one month today. On Tuesday, V Balakrishnan, chief financial officer of Infosys, told Reuters that the company was open to bigger deals given the right opportunity. Earlier, the company had maintained that its comfort size for acquisitions is up to 10 per cent of its own revenue. The company's management has often been criticized for sitting on a cash pile of nearly $4 billion.
(With inputs from Thomson Reuters)
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