The current global sell-off in shares has disproportionately affected the stocks of the major Indian IT services suppliers, some of which have lost over 20% in value in the last three weeks.
ComputerWire’s GCS Index, which tracks 44 of the largest public IT services companies worldwide, has fallen by over 11 percentage points over the last three weeks. Fears of a US recession, on top of the sudden loss of investor confidence in China, has pushed down share prices across industries and geographies.
Stocks in the major Indian firms have taken the heaviest hits. An index of the top five Indian players (TCS, Infosys, Cognizant, Wipro and Satyam) has fallen 22 percentage points since mid-February to 130 as at the close of trading yesterday.
Wipro has suffered the most, with almost $5bn wiped from its market capitalization in since February 16. Tech Mahindra has lost almost 22% from its value since that date, Infosys has fallen 17%, Satyam 16%, and Tata Consultancy Services 12%.
In comparison, the major US giants have held up comparatively well in the same timeframe. IBM and Accenture have fallen 8%, while ACS, CSC, and EDS have all lost around 5%.
The disproportionate effect on India is down to the risky nature of stocks which the market values at such high multiples of sales and earnings. Their extremely high valuations are predicated on them continuing to achieve the sort of growth they have made over the last five years. In the current climate, investors are reorganizing their portfolios to give more weight to less risky investments.
The sell-off off should be viewed in the context of the incredible increases Indian IT services providers have made recently. Hardest hit Wipro has only fallen back to where it was in mid-November 2006.
The last time shares in this market suffered a major decline was last May, following concerns over interest rate increases. The Indian Top Five index reached a low of 92 in early June, but then went on an unchecked seven-month run of gains to reach 152 before the current sell-off began.