Indian IT Sector: Down, But Not Out Yet

There is a very interesting quote that recently caught my attention. It says “advice is the only commodity in the market where the supply exceeds the demand”. The reason why this obviously simple piece of wisdom seems like the Holy Grail to me today is the recent behaviour of the Indian markets. Corporate results for the March 2013 quarter were not expected to be great. If you look at the numbers that have come in so far, they have indeed turned out to be in sync with what was expected. But the way the markets have reacted to these numbers, it seems like something out of the blue had hit investors hard.

Well, didn’t you know that companies in the IT sector were facing some headwinds? Weren’t you aware that higher interest costs have been hurting the operational performance of companies? Have global macro factors come to the fore just a day or two or a week or two ago? Well, if you answer to these questions in the affirmative, then the first test for you would be to spell MARKET! But as a regular reader of Dalal Street Investment Journal you would certainly agree to the fact that you were fully aware of what was to be expected from the markets and also of how to react in certain circumstances. After all, we have always been right there with the correct advice for our patrons.

Having said that, I must admit that the clamour of the so-called expert commentators who have proliferated the markets in dozens today, providing guidance to investors has been growing rather loud. Many of you would have definitely fallen for the advice they came up with when the first big trigger of the season (corporate results for the March quarter of 2013) kicked in. The way IT stocks have crashed after the frontline companies announced their results reflects the same. Infosys tanked by almost 21 per cent on the day it declared its results. Wipro too fell around 11 per cent over its results. You could say that these companies had a reason to fall. But what about HCL Technologies? This company came up with quite a good set of numbers and yet the stock tanked. It fell by seven per cent post the results. Most of them have been languishing ever since and investors seem to have lost interest in this pack, which was once the darling of the markets.

If you too have given up on the Indian IT story, here is a simple task for you. Pen down three solid reasons which make you believe that the long-term story of IT as a sector is all over. But, before you do that, here is something that could change your mind. The Indian IT sector may be down, but it certainly isn’t OUT. Companies have been adapting well to the changing dynamics of the business they are in. In fact, larger companies like Infosys, TCS and HCL Technologies have been chalking out elaborate strategies to meet the future challenges awaiting them. Smaller companies have been taking to newer technologies to build a niche for themselves. All in all, the competitiveness of these companies is yet to peak. How, why and what will result in the next big wave of growth for them? This is exactly what we have tried to present to you in our lead story in this issue.

A very interesting perspective has been presented to us by Krishnakumar Natarajan, Chairman NASSCOM, who met up with our Consulting Editor Vikram Limsay. His views on various factors reinforce our conviction in the IT pack. Another important corroboration of our stand comes from the Managing Director of National Institute of Electronics & Information Technology, Dr Ashwini Kumar Sharma. All of it points to exactly the case that we have made. I am sure all this would put you in a rethink mode on the IT pack.

FY13 saw the government mop up the largest ever amount from the markets through the divestment of its stakes in companies. It has set up an even steeper target for itself for FY14. What is the best option that it has to garner the maximum amount from the markets? The Offer for Sale (OFS) route augurs the best for it, says our Senior Assistant Editor in a special report on this critical issue.

For all our readers who are avidly following our recommendations, you have two good options this time too. HDFC, the country’s premiere housing finance company, is our Choice Scrip this fortnight, while the Low Priced counter that we have recommended is L&T Finance Holdings. Both these stocks have some excellent fundamentals to back our belief.

Your feedback is the most important element of our improvisation criteria. We look forward to it every issue. Once again, humbly inviting you to send in your feedback on the contents of this issue too. Do send us your views on comment@dsij.in