Why are technology stocks quiet?

New Delhi: Although the market has been in the grip of bulls, technology stocks are relatively quiet. This is despite the fact that the last quarter results of most IT companies have been pretty good.

If one looks at the performance of the IT majors like Infosys, Wipro and Satyam, the gains made over the last one month have been quite modest. Wipro has gone up by 3.75 per cent, while Satyam has registered a gain of 3.46 per cent.

The story is no different in Infosys either. In fact, it is worse, as the stock has slipped by 0.66 per cent. Another tech giant, TCS, too, does not have much to write home about. The stock has just appreciated by 1.15 per cent over the same period.

This trend has flummoxed market analysts as well, as they too have no answer for this lackluster performance of IT majors.

"The market somehow seems to be fairly negative about technology in comparative terms. For the first time in the last several years, I am seeing the biggies like Infosys quoting at such low P/Es compared to the manufacturing sector. Though they have tried to show their head up the last few days, technology has not really set the market on fire like the others,” says Investment advisor PN Vijay.

One of the reasons could be that the growth in the sector has just about met expectations. None the major companies in the sector have posted numbers that could have beaten street expectations. And whatever growth is expected in the companies has already been factored into their valuations.

Analysts also point out that, steep valuations in the sector are baulking investors from entering into these stocks. Not much is expected from the Budget either.

The Industry is expecting some concessions in terms of tax holidays, rationalisation of service and fringe benefit tax. But analysts say these hopes will largely remain belied. As one analyst points out, "Realistically speaking, the concession that the companies could look out from the Budget is on the Fringe Benefit Tax. The Budget may take out some items from the purview of this tax".

But even if, Chidambaram does decide to give in to the Industry’s demand for an extension of tax holiday, only midcap IT companies like Mphasis BFL might benefit.

"So what can one hope for in terms of the performance from IT majors in the days ahead? What could be a trigger for them? 'Infosys' guidance for FY07,” says one analyst.

He adds that if only the company comes out with a guidance of 25 per cent growth, the stock will soar up. Regarding other giants like Wipro and Satyam, he says that they are in line with the IT stocks. If these companies do manage to sign big contracts that could really act as a trigger for them at least in the short-term.

Given this, one will have to wait uptill April, before any major news comes out from the sector. Until then, the sector will continue to perform the way it has till now.