So have IT stocks lost investors' fancy? Not really. The current low valuations lines have little to do with the fundamentals. Many analysts feel that the Fed's rate cut may rub off well on these companies. Yet, much will depend on the behaviour of the US economy. FIIs continue to be guardedly upbeat on IT stocks; most are expected to allocate about 40-70 per cent of their funds to these stocks. Yet it is clear that the initial euphoria over IT companies has fizzled out and their celestial valuations are coming down to terrestrial levels. This may be because of an investor perception that all is not well with IT companies and that their impressive sales and net profit growth hides some uncomfortable truths.

The most critical factor is that IT companies are highly US-centric and any fluctuations in that market can tilt their fortunes. Infosys still depends for about 70 per cent of its revenue on the US, though less than the 95 per cent until recently. Satyam and others are no exception. Even the business pattern of the IT companies seems to have changed lately. Most have derived sustenance from the steadily growing telecomunications and E-commerce software business. The highly customised nature of banking and other financial services did provide a stimulus, but these segments have strong competition. There is no big buck to be made in the traditional systems implementation and maintenance contract business either. Indian IT companies need to fan out into overseas market with greater vigour, more innovative products and a highly customised service to stay afloat.