Tech Sector And The Dollar
Tech Sector And The Dollar
You often hear the argument about the USDINR going up driving tech stocks or the INR getting stronger driving down IT stocks. in the near term I often think that argument does not hold because the USDINR mostly goes up when fund flows are negative into equities and so it involves selling pressure on stocks. So Tech stocks are unlikely to go up during an equity decline. But later once the devaluation is done there is a stimulative impact. So the right way to look at it might be longer term trends of the dollar. Even better how do tech stocks do relative to the Sensex during such a period. I have never liked the street argument that favours investment in tech stocks as a defensive? A growth sector is now a defence against a poor market? Has that really worked? During 2003-2008 the last bull market the IT sector was one of the worst performing sectors, in the sense that on a relative basis they did not go up as much as the Sensex.
So here is the relative chart of the BSE IT index v/s the Sensex. It topped
in Y2K and has never looked back. In fact the RS was at the lowest level in Jan
2008. Now I need to remind you that 2001-2008 was a dollar bear market [or Euro
bull market]. And 2008-2016 was a dollar bull market. This is also a period
that saw earnings growth rates for the tech sector majors collapse along with
their profit margins. That is not the sign of growth but of a divergence in
performance that is consistent with a long term 5th wave, as explained in the Value Wave cycle theory for stocks.
So it has been my forecast for a year since we hit 102 that the Dollar is
topping out. The coming years will be more about the Weak dollar. What does
that mean for the Relative Performance of India's Technology sector? Look at
the last one year as a signal. The RS has dropped. The Indian Tech sector is
the last place you want to be, and this has nothing to do with Trump, Trump or
no Trump!
Adam Smith Associates offers trade & commodity finance related services & solutions to its domestic & international clients. Views expressed in this article are purely of the author - Mr Rohit Srivastava - a leading technical analyst. Visit www.adamsmith.tv for services offered by Adam Smith Associates Pvt Ltd
