IF you’re an investor in a technology stock, chances are that you have suffered a huge loss this month. After the tech crash in 2001, investors will remember April 2003 as a cruel month. Investors in technology stocks have already lost nearly Rs 22,000 crore in the month of April so far.The market capitalisation — the market value of all listed shares — of technology companies have fallen from Rs 81,000 crore on April 3 to Rs 59,000 crore by April 17. “Though this loss is only notional, it reflects the growing lack of investor confidence in the technology sector in India. This time there’s no guarantee that the companies which lost heavily will stage a comeback. in short, the market is re-rating tech stocks,” said Pawan Dharnidharka, dealer, Bombay Stock Exchange.According to brokers, several technology companies have come out with profit warnings for the current year. Put simply, a software company which made bumper profits till last month are now not sure of getting the same high profit margins this year. There can be several reasons for this: the impact of the Iraq war, SARS epidemic in several countries, global slowdown in IT spending by companies etc.Obviously, the market has to factor the dwindling orders and profit margins of technology companies. Infosys and Wipro — the top tech companies in India — have already come out with lower profits and profit warnings. Others are in the pipeline. The market capitalisation of top tech companies has fallen steeply. Wipro’s market cap plunged from Rs 29,599 crore on April 3 to Rs 20,562 by April 17, Infosys m-cap declined from Rs 28,517 crore to Rs 19,639 crore, Satyam from Rs 5,764 crore to Rs 4,535 crore and Mastek from Rs 713 crore to Rs 468 crore.Analysts say technology stocks are in line for a major correction. “This has happened at a time when investors thought the worst is over for the stock market. When the Iraq war ended, analysts and investors thought the market will now bounce back. But it has been proved wrong,” said an investor.However, for investors who suffered a massive erosion in their wealth in tech stocks two years ago the fall will be another blow. More than small investors, this time it was high net worth individuals, mutual funds and foreign funds who took the maximum hit. FIIs had pulled out Rs 567 crore funds (equity) from the domestic markets on April 10 and 11 after Infosys announced its quarterly results. Most of this selling was in tech stocks. And this was the biggest FII sell-off in the recent years. Moreover, most of the loss in market cap was accounted by Wipro chief Azim Premji who owns 85 per cent of the company’s holding. Premji alone lost Rs 8000 crore of wealth in April. Similarly, Infosys promoters (including Narayana Murthy and Nandan Nilekani) also lost heavily.What’s the right valuation of tech companies? Analysts are keeping their fingers crossed. Many have been caught on the wrong foot in the recent meltdown. The fall came when they were expecting a rally. If the “re-rating” of tech stocks intensifies in the coming days, one can expect further fall in investors’ wealth.
