The big IT companies earn almost all of their revenues from services abroad and if the rupee moves up from Rs 60 to Rs 55 on a stable government, it could hit IT companies badly. The rupee is now at 60.11 levels and is set to get back into the 50s levels, as markets bet on a Narendra Modi led government at the centre.
On Tuesday, Infosys hit a six month low, while Wipro fell to a five month low and HCL Tech dropped to a four month low. UBS also downgraded the Infosys stock to a sell citing reasons longer than expected time to make a recovery.
The Infosys stock only two months back hit a 52-week high of Rs 3849 on March 6, 2014. However, Infosys, TCS, Wipro and HCL Tech have seen severe selling pressure since than as guidance going forward was not very upbeat.
It's not only rupee worries, but also the fact that results have been muted from the likes of both TCS and Infosys. Also, some of the stocks had run up sharply last year and stocks like Infosys was one of the best performers from the Sensex stocks in 2013.
One more reason for the drop is that investors are now shifting their attention to economy related stocks including those from the banking, infra and capital goods sector. There is a sector churn which is happening, leading to a sharp decline in tech stocks.
Clearly, as we head into election results, IT stocks are going to be out of favour. However, if the NDA does not fair well, be rest assured that there would be a sharp bounce in technology stocks, as they are considered excellent defensive bets.