For companies forming part of this sector, our assignment of the price band first and foremost depends on our comfort factor with the management of a company. This is because the software industry is very dynamic in nature and management's ability to foresee trends would play a significant role in shaping a company's long-term prospects. The second most important factor is the business model of the company - whether it is product specific (more risky) or service specific. Finally, we have factored in the past performance of the company to provide a greater weight to our arguments. We value software stocks within a P/E band of 8 times to 22 times.

Infosys is one of the companies (the other being TCS) that fits in the highest P/E band of 15 times to 25 times. The reason for this is that, taking a long-term perspective, we expect earnings of these large players to grow at a CAGR of 20% to 25%. In case of Infosys, the strength of the company's management and its credibility has proved to be its greatest strength in the period of downturn. We have also assigned much weight to the company's work practices, its service offerings (moving towards the higher end of the value-chain) and most importantly, its capabilities on the delivery and scalability fronts.

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