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Infosys, TCS make a killing on weak rupee but should you worry?

Equity Tips

Beaten down technology stocks, which were reeling under Brexit woes and Donald Trump win in the US, saw a new lease of life this week as rupee plunged to a new low on November 24. BSE IT index climbed around 7 percent in this week starting November 18 while both the benchmark indices were marginally up 0.6 percent. Demonetisation leading to shortarge of cash in the country is slowing down business and trade volume on Dalal Street is also severely affected. Meanwhile, rupee fell to a record low of 68.85 per dollar as foreign institutional investors withdrew from emerging markets. And that's what brought much needed relief to the technology companies as depreciating rupee drives more revenue for export oriented firms.

Gaining momentum from rupee's weakness, Infosys   , TCS   and Wipro   rose 6.2 percent, 8.4 percent and 6.4 percent respectively in the week.

These companies, however, have been dealing with a lot of trouble and cut guidance for FY17 on growth slowdown especially due to softness in Banking, Financial services and Insurance (BFSI) sector. After Q2 results, Infosys reduced FY17 revenue guidance for the second consecutive quarter and had already warned of risks to guidance from RBS contract cancelation and tepid business in banking, manufacturing & retail segments. The country's second largest IT company slashed its revenue guidance for FY17 to 8-9 percent from 10.5-12 percent earlier in constant currency terms after considering performance of H2FY17 and near-term uncertain business outlook.

That had lead to a lot of selling in IT stocks this year. In November itself, BSE IT index is down 6 percent while Sensex and Nifty lost around 7 percent in this period. In year-to-date, both BSE IT index and Nifty IT fell 15 percent whereas Sensex was down 1 percent and Nifty was up 0.2 percent.

Investment & trading in securities market is always subjected to market risks, past performance is not a guarantee of future performance.
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