DefinePK

Abstract

The high valuations of the IT stocks all over the world, their vulnerability and the presence of cross-border contagion in the sector have created interest among researchers, investors and policy makers. This study looks for, using an exploratory factor analysis approach, the possible linkage of the Indian IT sector with the domestic stock market as well as with the outer world, particularly, the US and French market over different phases of stock price movements. Over the eleven-year study-period from 1999 to 2009, global stock market has witnessed two significant crises. While, the first crisis was confined to the IT sector, the second one has been most general and encompassing in nature. Most surprisingly, Indian IT sector remained strictly decoupled from the global IT markets during the period of IT-revolution and the consequent stock price crash. Even during the period of recovery that followed, Indian IT sector remained more closely associated with the domestic market. The integration of the Indian IT sector with the global IT market has been achieved only since 2007. During the period of the last financial crisis and the recent recovery, Indian IT sector have been completely dissociated from the domestic market. Such isolation of the sector from the other domestic sectors might provide opportunities for domestic portfolio diversification. The sector, however, is now exposed to industry specific risks.