Is the Indian IT Sector set for a Stock Market rebound ?

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The Indian IT sector , the darling of trade pundits is seeing some kind of resurgence since the start of the year.After a tumultuous last year which saw the Indian Stock Market losing nearly 50-60% of its value, IT stocks fared ever so badly.

It was however evident since most of the revenue that the Indian IT sector comes from overseas with almost every company getting around ~60% revenue through North America alone.A recession hit U.S. economy came as a jolt to the IT sector since IT spending literally froze overseas.

Now, with the economy on its path to recovery and the U.S. getting back on its feet, the picture looks rosy for the IT/ITES sector in India.

  • Industry analysts are confident of a turnaround and they have come up with promising IT spend estimates.
  • The Indian IT giants Infosys, TCS have both bettered the industry expectations with their quarterly results.

The pullback of the IT sector is evident from the fact that Infosys, Wipro are all trading close to their 52-week highs.With Infosys raising the revenue guidance for the fiscal, the market experts have further raised their expectations from the IT sector and recommending BUY calls on stocks Like Infosys.

BSE_IT_GraphBSE IT Index ( MoneyControl)

However, is it all good news for the IT sector that makes it a no brainer to start building positions in the IT stocks? Well, I have my concerns,

  • Rupee Dependency : As mentioned earlier, The IT sector derives a major chunk of its revenues from overseas.That means that the de-facto billing currency is Dollars( $) . A appreciating rupee spells dooms for the IT companies and eats into their profits.Rupee recently touched its 15 month highs and continues to stay strong against the dollar.

rupee_graph

Is The IT Sector taking into account the Currency Exposure

  • Human Resources : After huge cost cutting measures and a large scale hiring freeze in the last year, the IT sector has taken off salary freeze and announced plans to ramp up hiring.From the quarterly reports, both TCS and Infosys have reported resource utilization around 60-70% . The bottom line is going to take a hit with increased salaries and increased hiring.

Is The IT Sector confident of Increased Business and Efficient Resource Utilization

The two factors directly influence the top line and the bottom line respectively.The market outlook looks positive for the IT sector but i presume a Cautious approach is the way ahead as far as investments in the IT sector is concerned.

What do you think ? Is the worse over for the IT sector and an upside is on the cards.

  1. Janani Barath says

    Thanks ankit and sumayya for the clarifications

  2. sumayya says

    This is a cautious approach. Nice article to grasp the sector condition quickly.

    Janani- A contrarian approach is different it believes in buying when the stock is at a really low price and when everybody is selling.

    1. Ankit says

      Thanks a lot Sumayya, means a lot coming from someone from the domain :;-)

  3. Janani Barath says

    I like the perspective you have put forward. Is this what they call a contrarian view?

    1. Ankit says

      Hi Janani,

      Thanks for the appreciation. I wouldn’t call it a contrarian view exactly, this is more in line with throwing caution to the wind.I am going to watch the sector with interest and might enter if a correction happens.

      Contrarian view is going against the flow.If someone says BUY and i say SELL , thats contrarian.

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