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Yesterday there was a mayhem in the market. Going by Nifty statistics, in last few trading sessions, it has come down from 6200 levels to 5200 (even more on intraday basis) – a clear cut loss of more than 20% within just 6-7 trading sessions. Out of the 50 stocks listed in Nifty, not a single one was positive in terms of returns over previous day’s closing stock price.
Infosys or IT companies used to be the flavour of the trading day just one year back. Long term investments, mid term investments, short terms intraday trading, not a single piece or aspect of trading was assumed to be completed without a mention or recommendation of Infosys. Every single trade analyst or so called market experts and advisors would shout at the top of their voice – “Buy Stocks –Buy Infosys –Keep on buying shares of this company”.
After Infosys declared dividend, one of the stock holders was cited saying as “Only the divine Lord Tirupati Balaji gives, and after the divine God Tirupati Balaji, it is only Infosys that gives”.
I watch the webcast of CNBC. Today, not a single “Market Expert” talks about infosys. Yesterday’s closing price of Infosys was 1391. Few months back it used to smoothly sail at 2200-2300 range. A clear cut loss of 33% within less than a year! Other biggies like Wipro and TCS are not far behind.
Let’s look at what has happened:
In the last one year the dollar-rupee forex exchange rate or forex currency rate has become weaker by around 10%-12%. It used to be at 44-45 levels, today it is at 39-40 levels. A loss of 10 to 12% in forex currency trading terms.
However, the other currencies like Euro and Australian Dollars are still at almost the same levels when it comes to comparison with the rupee, in terms of forex exchange rates. The CFO of IT companies proudly claimed that they are diversifying their client base and are now spread across other locations in Europe, Canada and Australia, so that they are not hit by the dollar weakening, or atleast they don’t have that much exposure to dollar.
Another reason that is quoted is that they are using hedging for forex currency trading, so that way they were able to beat the street expectations. That is very true. But something worth giving a thought is why a mere 10%-12% decline in dollar value is translating to 33% decline in stock price of a dollar dependent company?
Continue to Part 2: Should you invest in the markets now?
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