Of IT Stocks Soaring on Rupee Depreciation and Top Stocks in Action Today

Fri, 13 Apr Pre-Open | Parth Parekh, TM Team

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Information Technology Stocks Rise on Rupee Depreciation

S&P BSE Information Technology index surged 3.2% in yesterday's trade on account of depreciation of rupee as against US dollar. Rupee has depreciated 3% since the beginning of 2018. As most of the IT services are exported, a depreciation in rupee bodes down well for the financials of IT companies.

The depreciation may continue given the fact that India has to repay a huge sum of external debt in the coming years. India's external debt stands at US$ 513 billion and almost half of the same has to be repaid in the next year. This may put pressure on the rupee. Further, a rise in the bond yields in the US may also led to the strengthening of the dollar.

Heavyweight IT stocks such as HCL Tech, TCS and Infosys surged 4.5%, 4% and 3.4% respectively in yesterday's trade.

The IT stocks which were depressed in the past two years on account of lower global growth and a shift to digitization have moved upwards on better prospects of global growth going ahead. A falling rupee too would help these companies post better numbers going ahead.

Stocks in Action Today

After two years of depressed earnings, all eyes are now on corporate results. The stocks have risen in the previous two years mainly on the back of re-rating of price/earnings (p/e) multiple. The earnings were suppressed mainly on the back of demonetization and implementation of goods and service tax (GST).

One more quarter of depressed earnings will lead to a higher price to earnings multiple, which could lead to deep correction in the indices. Recovery in the corporate earnings will be the key for the index to inch upwards going ahead.

Starting the earnings season is Reliance Industries Ltd who declared their results yesterday after market hours. The stock is expected to react in today's trade. Further, stocks of <>Infosys and <>RBL are expected to be in the news as they declare their results for the quarter ended March 2018.

Update on Global Markets

In the news from global financial markets, US stocks witnessed selling pressure while Treasuries rose after minutes from the most recent Federal Reserve meeting showed Fed officials leaning toward a slightly faster pace of tightening.

Note that the US central bank raised rates last month and forecasted at least two more hikes for 2018. It also lifted its economic growth projections for this year and 2019.

With the US economy chugging along for many months, the Fed is now gradually easing off the stimulus it provides to the economy by raising interest rates to more normal levels.

How does a US interest rate hike affect Indian investors?

The instant effect is foreign money moving out of India's vaults. This means a slight correction in the share market in India, albeit temporarily.

While this might provide a good buying opportunity in long-term stocks, the main thing to look forward would be capex and earnings trends.

In the end, Indian investors are better off staying informed about the corporate earnings revival than Fed rate hikes.

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