Infosys investors track Nasdaq for trends

Infosys investors track Nasdaq for trends
REUTERS

BANGALORE, JANUARY 3: The Infosys Technologies American Depository Receipt (ADR) has become the tail wagging the dog leading the pack in India's share markets. And that means Indian investors had better watch out for a nasty bite if the Nasdaq turns vicious.

India, which for a long time had no correlation with Wall Street, has been sucked closer to global trends by the emergence of information technology companies, led by Infosys. The first thing Indian analysts do each morning is check how Infosys's ADR fared on Nasdaq overnight for a view of the domestic market. So far it has been a one-way street - up.

Infosys, which just over a year ago did not figure in the bellwether Bombay top 30 index, now has a 17 per cent weighting. On Monday, the first day of trading in 2000, the index leapt over 7.5 per cent to record highs, but most technology stocks, including Infosys, hit an eight per cent circuit breaker in the morning. Infosys was frozen at Rs 15,677.50, up 1,161.25. "The rise of Infosys goes hand-in-handwith its rise on the Nasdaq," said Yeshwant Kini, analyst at SG Asia Securities.

Driven by e-com business: Though a computer software firm focusing on the services business, the firm's recent strides in making software for E-commerce and E-business clients is the chief reason behind the massive surge of its ADRs, analysts said.

"Apart from the highly valued Net companies in the US, software services companies that are making and maintaining websites for Net companies are also highly sought after," said Shekhar Singh, analyst at SBI Capital Markets.

Analysts expect Infosys E-commerce software revenues to touch 15-20 per cent of total revenues in the third quarter, up from 6.4 per cent in the first quarter of the fiscal year to March 2000. The Infosys ADR, which represents just 3.12 per cent of the firm's equity, ended at $330 on Friday - an 870% premium to its offer price in March of $34. At two ADRs per local share the premium over the domestic share price is over 100 per cent. India's foreigninvestment rules block any arbitrage between the two markets. Infosys' domestic ten rupee share ended 1999 at Rs 14,516.25, up over 350% since the ADR float in March.

In turn, Bombay's 30-share index has surged 64 per cent in 1999 - albeit helped by the re-election of a reformist government in October and a gradual recovery in industrial growth rates after a three-year slowdown. Infosys's ascent has made it the highest priced share in India, and in February the stock will be split in a two for one ratio to boost its affordability and liquidity.

Who is buying in the US: Its metamorphosis owes something to US investors' categorisation of the stock along with Internet stocks and its position as the only Indian company listed on Nasdaq and at home. "Considering the ADR is quoting at a premium of over 100 per cent or so, the market here seems to be buying into the story," said a fund manager with an Indian mutual fund who did not wish to be identified.

New York traders said the ADR has been driven mainly byretail flows, but it has also seen institutional interest, with a seemingly insatiable appetite for Internet and software stocks. "They just buy them and buy more and use the momentum approach. It (Infosys) started out as an Indian Internet play but now it's just an Internet play," an New York ADR trader said. An Infosys official said there were several institutional investors who were not registered as foreign institutional investors in India and therefore go for ADRs.