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it stocks outlook: Current pessimism in IT sector a good opportunity for investors: Vikas Khemani

“Order wins are lead indicators of what is coming in the sector in the next three, four, five quarters. Most of the IT sector stocks are offering very good risk reward. They are defensive in nature with a 3% to 4% dividend in many IT stocks and also reasonably good hedge against the currency,” says
Vikas Khemani, Founder, Carnelian Capital Advisors


If I compare the sell-off in global tech stocks and correlate that to what is happening in India, am I comparing apples and oranges?
I think the answer is there in the question. Both are two different sorts of segments, both are different drivers of growth. If you look at the last 10 years, that diktat in the US grew significantly but that was not the growth pack moving our IT services company.

Both are very different segments and in some sense, most of the US big tech companies have a direct consumer related growth for most of the Indian IT services companies, B2B businesses catering to those businesses and that too also across sectors and segments.

The aim of Indian IT services companies changed post Covid with the acceleration in the digitisation and cloud migration which was happening earlier but the pace of acceleration completely changed. That is the key driver of the growth for the Indian IT services companies and that in my opinion is not dependent on what is happening.

Of course, big tech companies will have a part of consumption from the Indian IT services companies no doubt about it but unlikely to have a very major bearing on that, if major slowdown happens it will have some impact out here as well but it is not that their growth is solely dependent only on big tech sort of companies, performance in the specifically in the share market because most of these companies would consume IT services and Indian IT services offer cost savings advantage as well.

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I would tend to believe that the set up of Indian IT services is very different from US IT and some of the things are set to change for Indian IT services companies, reporting attrition coming down, currency and all those things work well for Indian IT services in the medium term.

Do you think that Indian IT stocks despite the recent rout of underperformance are unlikely to come back up and for Indian IT stocks to come back up, globally growth stocks have to make a comeback?
I do not think so for the simple reason that anything happening in the developed part of the world will have an implication; there is no question on that because ultimately the demand is dependent on that and part of the economic growth as well. But having said that, some part of the demand is non-discretionary, some part of the demand is deflationary which helps companies save cost.

Even in the kind of labour market which is there in the US, some part of outsourcing is inevitable and as a result, some of the challenges which IT companies faced in the last few quarters including heightened attrition which affected IT companies more.

If you look at the quarterly earnings, in this quarter, most of the companies had decent order books. Now if any CEO of any large organisation is giving a large contract, he is doing that knowing very well that the recession could be in offing. Today that scenario is very well known to everybody who is giving a contract. Now if that scenario also if your wins orders and total contract values are robust and growing, it clearly gives a bit of indication what is in store.

According to me, the order wins are lead indicators of what is coming in the sector in the next three, four, five quarters. Most of the IT sector stocks are offering very good risk reward. They are defensive in nature with a 3% to 4% dividend in many IT stocks and also reasonably good hedge against the currency. One should not be very worried that right now the current hype of pessimism in the IT sector could provide a good opportunity.


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