Trump Fire Singes Funds, IT Hold­ings Lose ₹ 1k cr in a Day

IT cos face big hit, but some fund man­agers be­lieve their ex­cel­lent bal­ance sheets could limit the down­side

The Economic Times - - Money -

Prashant Ma­hesh and Anandi Chan­drasekhar

Mum­bai: The sharp sell-off in tech­nol­ogy shares on Tues­day eroded a lit­tle over Rs 1,000 crore of mu­tual fund hold­ings in these com­pa­nies. The Nifty in­for ma­tion tech­nol­ogy (IT) in­dex, which com­prises top-10 stocks in the sec­tor, de­clined 3.2% on Tues­day af­ter the US moved to tighten work-visa rules in the coun­try.

Mu­tual funds’ port­fo­lio value in top-five tech­nol­ogy com­pa­nies is Rs 36,000 crore. TCS fell 4.3%, HCL Tech­nolo­gies dropped 4.2%, Tech Mahin­dra de­clined 3.7%, In­foys fell 2.1% and Wipro weak­ened 1.1%.

In­fosys is among the top hold­ings of large eq­uity mu­tual funds, such as HDFC Eq­uity, Birla Sun Life Front­line Eq­uity, ICICI Pru­den­tial Fo­cussedBluechipFun­dandHDFC Top 200.

The H-1B re­form bill in­tro­duced in the US House of Rep­re­sen­ta­tives called for dou­bling the min­i­mum salary of H-1B visa hold­ers from $60,000 to $130,000. If im­ple­mented, the rule will will add to the woes of tech­nol­ogy com­pa­nies, al­ready reel­ing from the im­pact of global un­cer­tainty.

“Along with al­ready-slow­ing busi­ness growth and pric­ing pres­sures that In­dian com­pa­nies have been fac­ing, this is an added neg­a­tive,” says Har­sha Upad­hyaya, Chief In­vest­ment Of­fi­cer (Eq­uity), Ko­tak Mu­tual Fund.

These stocks have been un­der­per­form­ers over the past year with the Nifty IT in­dex los­ing 12.16% as against the 13% rise in the Nifty dur­ing the same pe­riod. An­a­lysts be­lieve the earn­ings of IT stocks could be im­pacted neg­a­tively by as much as 5-15%.

“If the bill be­comes a law, most IT com­pa­nies could see a 200-400 ba­sis points drop in their mar­gins. For ex­am­ple, Wipro would see its wage bill in­crease by as much as 80%, the high­est among all IT com­pa­nies,” says Ashish Mau­rya, an­a­lyst at Cho­la­man­dalam In­vest­ment and Fi­nance Com­pany.

How­ever, some fund man­agers say the down­side from cur­rent lev­els is lim­ited given the strong bal­ance sheets of IT com­pa­nies. “Down­side is capped for front­line IT com­pa­nies, as they are cash rich. They have high re­turn on eq­uity and could even go for a buy­back,” said Akash Sing­ha­nia, Deputy CIO, DHFL Pramer­ica Mu­tual Fund.

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