FII ‘big bulls’ behind ICE ‘rally’

FII ‘big bulls’ behind ICE ‘rally’
ENS ECONOMIC BUREAU

MUMBAI, JAN 21: If a couple of domestic operators ramped up ICE (infotech, communication and entertainment) shares in the beginning of 2000, this time it’s foreign institutional invetsors who are doing the job. With the Union Budget only a month away, FIIs have gone one step ahead of leading domestic operators and pushed up the ICE market capitalisation by nearly 22 per cent in a week.

Thanks to the ‘accumulation’ by FIIs, the infotech sector is back in the limelight. Last week alone, the combined market-cap of 10 software scrips surged by a huge Rs 21,000 crore, or 14.39 per cent, to Rs 1,66,991.19 crore from Rs 1,45,990.04 crore. “This FII surge caught local operators on the wrong foot. Many operators who had gone short are now buying back shares to get out of the mess,” said a market source, adding, “some clever operators who anticipated the FII move also moved in line with them.” History is likely to repeat again.

Retail investors are once again likely to be lured into the market by the FII buying. “The past experience is that FIIs will get out when retail investors enter the fray. Retial investors will now enter the market seeing the infotech rally. They will once again accumulate ICE shares at higher levels and burn their fingers. Shrewd FIIs and big operators will get out when It stocks reach high levels in the coming week. Small investors should be careful,” said a merchant banker.

Two software majors which have made biggest contribution to the rise in the ICE sector market-cap are none other than Wipro and Infosys Technologies. While Wipro’s market-cap rose 13.58% at Rs 67,719.04 crore, Infosys’ market cap has gone up almost 17% at Rs 44,916.99 crore. Another software major, HCL Technologies’ market cap has gone up by a huge 22% at Rs 21,004.40 crore.Besides software majors, their small counterparts have also seen an improvement in market cap. The combined market cap of 82 small/medium sized companies has gone up almost 12% during the last one week at Rs 6406.27 crore.

On the Bombay Stock Exchange, the Infosys Technologies scrip went up 16.91% last week to close at Rs 6,778.90 from Rs 5,797.95 in the previous week. (12 Jan.2001). Similarly, the Infy ADS has jumped 23.57% on Nasdaq last week after it gained $7.50 in a single trading session on Friday to $124.81. Infy ADS had closed at $101 on Nasdaq in the previous week. This means that the Infosys Technologies share price on BSE and the Infy ADS listed on Nasdaq have been taking cues from each other recently. The Infy ADS already rules at a huge premium on Nasdaq compared to Infosys’ share price on the BSE. Each Infy ADS is equivalent to one-half of the underlying equity share, which means that the Infy ADS is currently trading at about 70% premium to the domestic market price of Infosys Technologies scrip on the BSE.

The 30-share BSE Sensex jumped 158 points or 3.91% during the week to close at 4194.46 on Friday, 19 Jan 2001, compared to its last week’s close of 4036.58. Most of the gains in the Sensex were on Friday. “FIIs managed the IT rally systematically last week. They went after Infosys which in turn percolated down to other software scrips with the sustained recovery on Nasdaq and strong third quarter earnings,” said an analyst with an investment firm.

Some of the non-Sensex software shares turned big gainers during the week buoyed by their strong third quarter earnings. Wipro, which notched up 120% jump in its third quarter net profit, gained 13.58% to close the week at Rs 2913.90. Digital India was another big gainer of the week after it announced a huge 188% jump in its third quarter net profit at Rs 16.58 cr on Thursday. Its shares gained 14.17% to close the week at Rs 615.40.

The domestic software sector was buoyed by surge on Nasdaq after the fourth quarter results of tech companies met their previously reduced estimates. The Nasdaq Composite Index gained 5.5% last week to close at 2770.38 on Friday. Besides software shares, most media and telecom counters like Himachal Futuristic Communications, Sterlite Optical, Aksh Optifibre, Zee Telefilms, Balaji Telefilms and Mukta Arts staged a late recovery on the bourses shrugging off the rejection of bail plea of film financier Bharat Shah.

FIIs indulged in a buying frenzy on domestic bourses during the week. They pumped in a huge Rs 844.20 cr during the first four days of the week, from Monday to Thursday, for which the data was available. Their net inflow in the new year till Jan 18, 2001 has reached a huge Rs 2,660.90 cr (net).

According to market sources, FIIs, of late, have been active in software shares like Satyam Computer, Infosys Technologies, Wipro and NIIT and also in media firm Zee Telefilms. The biggest question mark is: will the FII buying continue in the coming weeks? One FII which was recommending investors to sell Infosys only two weeks ago was in the forefront buying the same share last week. One will have to wait and see how far the share manipulation will continue in the name of Union Budget.