New Delhi, Feb 27: Post-budget, the much battered IT stocks may witness anuptrend in prices as the negative factors are already discounted and currentvaluations are compelling, say brokers and fund analysts.The software industry is not expecting any major sops from the budget, butis concerned about the prospects of introduction of a service tax on ITcompanies. Nevertheless, the market has already discounted this factor. SaidMr Ashok Kumar Agarwal, former Delhi Stock Exchange (DSE) president, "The ITstocks are expected to witness a recovery if the finance minister does notimpose the much anticipated service tax on software companies. They are alsoexpected to benefit if there is a reduction of import duty on hardware." "Inaddition to the service tax, a reduction of dividend tax at least to 10 percent, removal of Kargil surcharge, management of fiscal deficit and policieson disinvestment will also have a positive impact on the markets," headded.
"The fall in the market during the last one week has been largely due toanxiety regarding the budget and rumours. Nevertheless, the IT sector isexpected to grow very strongly and once the picture gets clear post-budget,these stocks may see an upward trend," said Mr KK Mittal of Escorts MutualFund. Agreed Dhirendra Kumar, CEO of Value Research, a Delhi-based funddatabase, "The downside in IT stocks seems minimal, but upside could bephenomenal. These stocks are close to their bottoms and are currentlytrading at compelling valuations." Once a buying momentum is build up inthese stocks, funds may take a fresh look at them. "Most of the funds wereoverweight on IT and since they have streamlined their portfolios anappetite is slowly building up. However, the activity may be limited to topIT stocks," Mr Kumar added.
Mr Sudhir Joshi, president of DSE, is also bullish on IT, "Select IT scripscurrently provide opportunity for value investments. These scrips have beenbattered to levels lower than where they should have been. Over a period ofsix months these stocks may provide attractive returns." If the budget dolesout some sops for the capital market, these could be major drivers of arally. Reduction of dividend tax, measures to enhance liquidity likeexemption of secondary market investments from capital gains tax, fiscalincentives for primary market and PSU disinvestment through the stockmarkets can drive up sentiments. However, a section of marketmen felt that aservice tax may hit the industry hard. Said Mr Sunil Joseph, president ofDundee Mutual Fund, "If the Finance Minister imposes a tax on softwaresector, this should have a dampening effect."
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