IT stocks were depressed on Thursday following expectations that the budget will impose new taxes on these companies as well as due to the weak US markets on Wednesday.

Tech bellwether Infosys Technologies (down 0.9% to Rs 4,192), HCL Technologies (down 1.3% to Rs 165.10), Satyam Computer (down 0.6% to Rs 222.90), Digital GlobalSoft (down 0.6% to Rs 605.50) and Wipro (down 1% to Rs 1,423), were all caught in the slipstream today.

A host of second line IT stocks including R S Software (down 5.11% to Rs 26), PSI Data Systems (down 5% to Rs 60.50), Hexaware Technologies (down 4% to Rs 126.10), Mascot Systems (down 2.8% to Rs 120.75), Polaris Software (down 2.3% to Rs 142.95) and VisualSoft Technologies (down 2.3% to Rs 188), were also in the red.

The trend has been similar over the last three trading sessions after a surge on Monday. On Monday, techs gained after a lukewarm report on Iraq (Friday) by the UN weapons inspection team. The report vindicated the reckoning that a solution other than war would be reviewed over the Iraq crisis.

The combined market cap of 23 large software companies gained 2% to Rs 86804.08 crore (Rs 868.04 billion) in one week to 19 Febuary 2003. But in the last one month till that date, the market cap fell 5.7%.

There are concerns that the budget could result in additional taxes for the IT sector. In the last budget, the then finance minister Yashwant Sinha lowered the 100% deduction of export profits allowed under sections 10A and 10B of the Income Tax Act to units existing in software parks/free trade zones to 90%. The 10 A/10 B benefit is available for software units set up by 2010.

But the Kelkar Committee report has recommended the scrapping of such benefits. "Software stocks will take a hit if the Kelkar Committee recommendation is incorporated in the Union Budget," a dealer with a local brokerage warned.

Market men also reckon that those IT companies which show false profits (there are some companies indulging in such activities , according to market men) would have to show clear profits in case taxes are increased on IT exports.

Meanwhile, large software companies could benefit from the trend of outsourcing from global companies. Global companies are expected to increasingly outsource to India in a bid to reduce costs. Indian companies with competitive billing rates and proven ability are seen as major beneficiaries from this outsourcing trend.

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