| . | The week ending July 14 saw the stock markets continue in a state of confusion. While the Sensex settled around 4856, there was no perceptible trend linked to performance. While Infosys stock came down inspite of an excellent performance, along with other software stocks such as Wipro, Satyam and NIIT, FMCG stocks appeared to be in better demand. Generally the early results from the IT sector have shown that even during the current quarter ending June 30, the major IT companies have shown a significant growth in turnover and profits. While USA continues to drive a large share of earnings of our IT companies, the industry’s future is linked to two distinct promises. Firstly, Europe is emerging as an alternative destination for our software companies with Germany in particular followed by Italy rolling out red carpets. Secondly, new areas of software development induced by Internet either as E-Transformation of existing companies and Appliances are providing a huge opportunity not only for developing new software for new uses, but also for web-enabling the software already developed. IT therefore is poised for greater exploits despite some of the institutions re-adjusting their holdings to cut on their exposures on IT industries. While they can always come back quickly once the sentiments bounce back, small investors have to gradually accumulate quality stocks at every fall. We can therefore look at potential stocks in the IT sector for gradual acquisition at every fall. Mastek is an 18 year old company with over 1000 employees and carries ISO 9001 and SEI CMM level 4 certification. The Company therefore belongs to the select fold of 30 companies in the world which have a SEI CMM Level 4 or 5 certification. The company closed the latest year ending June 30 with a turnover of Rs 253 crores and a net profit of Rs 30 crores up by 200 % from Rs 10 crores in the previous year. With an equity base of Rs 6.92 crores, the EPS has therefore jumped to around 43. The share price has now hardened in the market and reached around Rs 1700. One of the noteworthy features of the last year’s performance has been that nearly 46 % of the revenue is reported to have come from the e-commerce and Internet related software development. To further build on this lead start, the company has set up an Internet competancy center and set up a partnership with Vignette, a leading supplier of e-Business applications. The Company has been executing some prestigeous projects in UK, and Malaysia and has recently set up a subsidiary in Belgium which should help it harness the opportunities arising in Europe. These developments have helped the company to absorb the loss some clients in the recent past and promise a continued growth for the company in the current year warranting a consideration of the stock. A word of caution is however due to investors regarding the impact of some of the measures that RBI and the Ministry of Finance are proposing to take which could indirectly affect the future of some of the E-Commerce dependent companies in India. First of all there is a school of thought that the IT Companies have not been sharing their prosperity with the Government and should therefore be subject to higher taxation. A preliminary attempt in this regard has already been made in the last budget. More critically, RBI is now eyeing on "Regulations" to "Safe guard" the interests of public in an emerging society where "electronic transactions are replacing paper based transactions". An intention to this effect was indicated by the RBI Governor last Thursday while inaugurating the annual BancIT seminar organised by Infosys. As per reports appearing now, RBI appears to be formulating a comprehensive guideline ostensibly to regulate the Finance business in the emerging paper less society. It is expected that such regulations may bring guide lines on how money transactions on the Net can be settled by E-Commerce companies. This may inter-alia provide guide lines on the setting up of Certifying authorities who may issue Digital Certificates acceptable to the Banking industry besides regulating other forms of creating and settlement of obligations on the Internet media. If Finance Companies are at one end of money transactions, E-Commerce Companies are at the other end. RBI may therefore feel that if it can control one, it can control the other. In the past, Finance Industry has been forced to pay for the incompetence of RBI and SEBI leading to the failure of CRB. Now it appears that Finance industry is being used as a lever to gain control on E-Commerce. Just as IT industry has the ability of making India a "IT Super Power", given the traditionally high savings rates in the country, India can also dream to be a "Financial Super Power" one day. Let us hope that both the golden gooses are not killed in one stroke by the RBI through the proposed regulations. Na.Vijayashankar
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