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Abhrajit Gangopadhyay

BANGALORE, May 26

FOREIGN investors led by institutions have sharply slashed ADR target prices for software bellwether Infosys Technologies, Wipro and Satyam on the back of hardening rupee that recently breached Rs 47 mark against the dollar.

Several foreign funds had indicated that they might unwind their positions in the technology counters if rupee continued its northward journey, dealers said, even as top technology stocks remained mixed on Monday's trade on the Bombay Stock Exchange.

The rupee, which gained over 1.3 per cent in the current calendar year till March-end against the dollar, is likely to put pressure on the operating margins of software exporters who earn most of their revenues in dollars.

The drag on margins, in turn, was likely to pull down the bottom line going forward, if rupee continued to sustain its upward momentum, dealers and analysts said.

According to a recent Smith Barney report, the equity broking arm of Citigroup, Infosys target price has been cut to $51 from $60, even as the firm retained "outperform" rating on the company.

For Wipro, every one per cent appreciation in rupee against the dollar drove down earnings per share by 1.3 per cent, analysts said. In the current strong rupee backdrop, Smith Barney has cut its target prices to $22 from $26.

A further deterioration in the pricing environment and the recent anti-outsourcing spurt in the US had prompted the foreign investors to take a "cautious" look at the local software exporters, dealers said.

"Currently, these campaigns are confined to federal departments but if they spread to non-Government sectors, there is increasing risk to the business", an analyst with a European brokerage said. Moreover, there are concerns over a recent Bill seeking restrictions on companies from outsourcing their L1 visas to clients.

Any cuts in H1B visa quotas could impact onsite efforts, which in turn dampen business flows to Indian software vendors.

Companies such as Infosys and Wipro were in the process of high selling and marketing expenses build-up mode and a rising rupee could further cramp its margins, analysts noted.

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