A firm rupee and signs of the US economy slowing down make Indian information technology stocks look a tricky bet at this juncture. Stocks in the sector have been steadily declining over the past few months. Institutional investors have been shying away from frontline stocks and many prominent broking houses are taking a cautious view.
But there may still be some hope, if the performance of the recent initial public offerings of IT companies is any indication. All five IPOs by IT companies that got listed in the past one month have received an overwhelming response from investors. All of them listed at substantial premiums to their issue prices, and continue to trade above their issue prices despite the turmoil the stock market has witnessed in the past few weeks.
Observers, however, advise caution with these stocks now, as most newly listed companies appear to be optimally valued at current levels. In the past one month, Allied Digital Services, Everonn Systems, Omnitech InfoSolutions, Zylog Systems and Take Solutions together raised over Rs 450 crore.
All the IPOs were oversubscribed many times despite the short notice at which they were floated and the prevailing gloom over the sector. While the Everonn IPO was oversubscribed 132 times, others were oversubscribed more than 50 times.
The overwhelming response to these IPOs can be partly attributed to the focused business models of the firms. For instance, Take Solutions provides product solutions to the supply chain management (SCM) and life sciences sectors.
"Each of these is a niche market company with a long-term play. Further, these issues are relatively small and offer lesser liquidity. These are some of the prominent reasons for the kind of valuations they enjoy", IDBI Capital Market Services research head Shahina Mukadam said.
So, do these companies still look attractive for fresh investment at the current levels? Experts advise caution while taking fresh positions in these counters. Ventura Securities research head Subramanyam Pisupati said, "There can be external factors such as oversubscription for the huge gains on listing.
We need to see their performance on a sustainable basis. We can take a better call on this over a period of two-three quarters." He stressed markets and investors need time to link the market returns of a company to its business performance. Ms Mukadam said, "Factors like merchant bank support may play a vital role in the success of an IPO. Hence, this cannot be a guarantee of future performance."
But there may still be some hope, if the performance of the recent initial public offerings of IT companies is any indication. All five IPOs by IT companies that got listed in the past one month have received an overwhelming response from investors. All of them listed at substantial premiums to their issue prices, and continue to trade above their issue prices despite the turmoil the stock market has witnessed in the past few weeks.
Observers, however, advise caution with these stocks now, as most newly listed companies appear to be optimally valued at current levels. In the past one month, Allied Digital Services, Everonn Systems, Omnitech InfoSolutions, Zylog Systems and Take Solutions together raised over Rs 450 crore.
All the IPOs were oversubscribed many times despite the short notice at which they were floated and the prevailing gloom over the sector. While the Everonn IPO was oversubscribed 132 times, others were oversubscribed more than 50 times.
The overwhelming response to these IPOs can be partly attributed to the focused business models of the firms. For instance, Take Solutions provides product solutions to the supply chain management (SCM) and life sciences sectors.
"Each of these is a niche market company with a long-term play. Further, these issues are relatively small and offer lesser liquidity. These are some of the prominent reasons for the kind of valuations they enjoy", IDBI Capital Market Services research head Shahina Mukadam said.
So, do these companies still look attractive for fresh investment at the current levels? Experts advise caution while taking fresh positions in these counters. Ventura Securities research head Subramanyam Pisupati said, "There can be external factors such as oversubscription for the huge gains on listing.
We need to see their performance on a sustainable basis. We can take a better call on this over a period of two-three quarters." He stressed markets and investors need time to link the market returns of a company to its business performance. Ms Mukadam said, "Factors like merchant bank support may play a vital role in the success of an IPO. Hence, this cannot be a guarantee of future performance."
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