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1-min read

Why IT Stocks Are Down Even When Sensex, Nifty Up Over 5%

Experts said that while today’s announcement was one of the biggest reforms for the struggling Indian economy, the IT sector does not stand to benefit much from it as IT companies are more dependent on overseas business.

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Updated:September 20, 2019, 3:40 PM IST
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Why IT Stocks Are Down Even When Sensex, Nifty Up Over 5%
Representative image (Reuters)

Even as a sea of green was seen across stock market indices on Friday, with the broader Nifty 50 index posting its biggest-ever single-day gain in history, the sentiment around the information technology (IT) sector was muted, with the Nifty IT index being the only sectoral loser.

While the Nifty was trading higher by 570 points, or 5.3%, at 11,274.75 in afternoon trade after finance minister Nirmala Sitharaman announced a cut in effective corporate tax for domestic companies from 30% to 25.17%, the Nifty IT index was still trading in the red, down 0.15%.

Experts said that while today’s announcement was one of the biggest reforms for the struggling Indian economy, the IT sector does not stand to benefit much from it as IT companies are more dependent on overseas business.

Gautam Duggad, Head of Research, Motilal Oswal Financial Services, told Moneycontrol: “IT sector does not have much to gain from this (cut in corporate tax for domestic companies) as they are dependent on external factors rather than internal.”

The IT sector business depends on markets such as the US, UK and Europe for their earnings. Major IT companies derive nearly 85-90% of their business from these markets, while the India market accounts only for about 10-15%.

No wonder, stocks of leading IT companies like Tata Consultancy Services Ltd, Infosys Ltd and Tech Mahindra Ltd were down up to 1.5% each, while Wipro Ltd was trading flat, even as rupee strengthened against the dollar to trade at 70.67 compared with its previous close of 71.32.

However, there was some relief For Wipro and Infosys as Nirmala Sitharaman made another announcement regarding withdrawal of buyback tax for listed companies that had already made a public announcement of the offer on or before 5 July 2019. Now, both the firms will be exempted from the buyback tax of 20% which was announced during Budget 2019.

To recall, Infosys had announced a buyback of Rs 8,260 crore in January. The buyback started in March and closed on 27 August, while Wipro made public announcement for buyback of Rs 10,500 crore on 5 June. Wipro’s buyback offer started on 14 August and closed on 28 August.

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