Tech stocks edged up on Wednesday on hopes that a US-Iraq war, which is imminent, may not last long, and also due to the rally on the Nasdaq since the last two sessions.
Most of the tech stocks advanced in mid-morning trades. Software bellwether Infosys Technologies was up by 3.3% at Rs 4,171, HCL Technologies (up 1.7% at Rs 153.15), Satyam Computer (up 1.6% at Rs 197.55), Digital GlobalSoft (up 1.7% at Rs 625) and Wipro (up 1% at Rs 1,334).
A host of second-line and third-rung IT stocks also posted gains. This included Onward Technologies (up 5.5% at Rs 22.75), Orient Information (up 4.1% at Rs 32.60), R S Software (up 3.5% at Rs 21.75), KPIT Infosystems (up 2.9% at Rs 165), Ramco Systems (up 2.8% at Rs 479.50), Hexaware Technologies (up 2.6% at Rs 109.75), Hughes Software (up 2.2% at Rs 174.60), GTL (up 2% at Rs 68), Mascot Systems (up 2% at Rs 103), Sonata Software (up 1.9% at Rs 13) and i-Flex (up 1.6% at Rs 868).
The BSE IT sector index was up by 27.89 points, or 2.05%, at 1,391.35 from its close of 1,363.46 on Monday (17 March 2003). The market remained closed on Tuesday on account of Holi'.
Wednesday's gains in IT stocks came on the back of hopes that the US-Iraq war may last for a short span. US bourses surged on Monday amid these expectations, triggering a rally across the global equity markets. On Tuesday, the US markets gained further ground.
Earlier, on Monday, US President George W. Bush gave a 48-hour ultimatum to Iraqi President Saddam Hussein to leave Iraq or face invasion. Hussein, however, warned that Iraq's forces were prepared to confront the US forces and also its allies.
Local tech stocks had been badly affected in recent sessions following concerns that if a war breaks out, the IT sector will be the worst-hit as it receives over 65-75% of its export revenues from the US. The BSE IT sector index plunged by 140.54 points, or 9.3%, in 10 sessions to hit a low of 1,363.46 on 17 March from its close of 1,504 on 28 February 2003.
A short and swift war may not affect the IT sector much, according to analysts. When the war takes place, corporates globally would adopt a wait-and-watch approach, which, in turn, may result in slowdown in decision making, said Pratish Krishnan, a IT analyst with Cholamandalam Securities, adding that procastination on placing orders may affect local IT companies.
Analysts said a major cause for concern for the IT sector is that though clients are busy negotiating the terms for contracts, the same may not translate into actual order flows. Also, there are chances that client visits may take a hit after the war breaks out.
On the flip side, it is reckoned that the slowdown in the US and European economies could provide opportunities to the Indian IT sector by way of increased outsourcing in a bid to reduce costs. Indian companies, with competitive billing rates and proven ability, are seen as major beneficiaries from this outsourcing trend.
The Union Budget for 2003-04 has turned out to be favourable to the IT sector with the restoration of the 100% 10 A/10 B tax benefits on export profit of units located in software technology parks/ zones. The Budget for 2002-03 had lowered 100% deduction of export profit to units existing in these parks/ zones to 90%. These tax benefits are available for software units set up before 2010.