Investors in the top four information technology stocks -- Tata Consultancy Services, Infosys, Satyam and Wipro -- have lost almost Rs 77,500 crore over the last six months.
The four IT majors comprise around 70 per cent of the market capitalisation of the IT sector.
The loss, though notional, hurts more if investors in IT stocks compare their fortunes with those in non-IT stocks.
These stocks gained around Rs 5,86,000 crore -- a 17.8 per cent increase -- in the same period.
The sectors that have fared well in the current rally are banks (+20.1 per cent), refineries (+27.89 per cent), steel and engineering (+38.34 per cent each), and mining and capital goods (+over 46 per cent each).
The valuation of IT stocks has also taken a beating -- from an average price to earnings (P/E) ratio of around 33.12 six months ago to 25.38 on July 23.
Taking into consideration the estimated growth in net profit for financial year 2007-08, the valuation of shares will take a further hit with the forward P/E ratio touching 22.29.
Most industry analysts and brokerage firms, however, are still maintaining a "buy" on most IT stocks. The more cautious among them are advising investors "not to overexpose themselves". In the case of the top four IT firms, they are optimistic that the share prices will regain their February 2007 highs.
The reasons are many. To begin with, the first quarter is a "seasonally-weak" one for most IT firms since salary hikes would have been effected in this period. This time around, the rupee appreciation and the rise in visa costs added to the plight. The second quarter (July-September) is generally the best quarter, say analysts.
Though no one can predict the rupee's direction with accuracy, most IT firms have managed to effect a hike in the billing rates -- anywhere between 3 and 8 per cent.
They have also improved their employee utilisation rates (hovering around 55-80 per cent), managed wage cost by hiring more freshers, and are moving to other geographies where the currency impact is lower.
Indian IT firms are learning to cope with the appreciating rupee, according to Pradeep Udhas, global head (sourcing advisory), KPMG.
"Till now they focused only on increasing sales. They are now looking at improving operational efficiencies, and could easily gain 4-5 per cent by doing so."
Internal efficiencies would include improving productivity, lowering the bench size, travel and recruitment costs, playing with an onsite-offshore mix, besides increasing automation and reducing rework on fixed-price contracts.
The traditional levers of utilisation, onsite-offshore mix, employee rotation and scale efficiencies should kick in, but with a lag, say ABN-Amro analysts. The key differentiator, they add, should be how quickly the companies manage costs.
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