IT stocks for long have remained the life of the sensex. They still are, more so considering the enthusiasm of the BSE in including IT and media stocks in the Sensex. But the question is whether this argument of the sensex dancing to the tunes of the IT sector a myth or a reality? Prima facie, it appears that the sensex moves in tandem with the IT stocks and vice versa. Investors believe that if the sensex is falling, so will the share prices of the IT companies, mind you even the leading ones. But this somehow does not seem to be the total reality.

Post-budget, we have all seen the sensex dive. Investors are in panic whether or not to invest in IT stocks, since the fate of the latter could also be the same. But wait. Take a look at what’s actually happening. The correlation between the sensex and the IT index, for the 17 days post-budget, is negative at –0.30 (keeping the IT index dependent on the sensex). Taking the vice versa case, i.e., the sensex depending on the IT Index. The correlation is still negative at –0.10. Then could the belief that the IT stocks sliding down because the sensex is dropping, be true? Definitely not.

Chandrasekhar G