Will the US slowdown affect Indian IT? - Views on News from Equitymaster

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Will the US slowdown affect Indian IT?

Jan 30, 2001

That’s one question we posed to Mr Sunil Joseph, President and Director of Dundee Investment Management and Research, in our latest interview with him. To our query – Do you believe a US slowdown could have an adverse impact on the domestic IT (infotech) sector? Mr Joseph replied, ‘Our IT expertise does not include making software products, rather, we are service providers and are placed at the lower end of the ladder. So I do not see us getting affected by a US slowdown for at least 2-3 years, and I feel that way very strongly.’

Open-ended, IT Funds NAV
(Rs)
Last
week
Last
month
Last
year
*CAGR
Inception
IL&FS eCOM Fund (Gr) 5.4 7.8% 19.3% 0.0% -60.6%
UTI Sector- Software 15.0 7.5% 17.4% -21.9% 25.7%
DSP ML Tech.com (Gr) 7.1 7.1% 18.1% 0.0% -17.4%
K Tech 6.2 6.9% 17.5% 0.0% -20.9%
Tata IT Sector Fund 9.3 6.6% 19.7% -41.5% 15.0%
Pru ICICI Tech. (Gr) 5.3 5.6% 17.2% 0.0% -46.0%
Magnum Sector Funds-IT 12.6 5.3% 13.5% -45.8% 57.9%
Chola Freedom Tech (Cum) 13.2 5.1% 17.8% -28.6% 9.0%
Birla IT Fund (Gr) 13.9 5.0% 11.1% -50.6% 6.8%
Sun F&C Emerg Tech (Gr) 6.0 4.7% 14.0% 0.0% -29.7%
Alliance New Millenn (Gr) 7.8 4.4% 16.6% 0.0% -49.1%
K P Infotech (Gr) 24.6 3.9% 18.2% -34.4% 96.7%
K P Internet Opport.(Gr) 6.9 3.4% 16.5% 0.0% -27.7%
*CAGR=Compounded Annual Growth Rate

However, the US slowdown will hit the country’ second rung IT companies. So Infosys, Wipro, Satyam, Hughes, HCL Tech are going to be largely insulated from any cut in IT spending in the US. This is because, top rung companies like Infosys, Satyam, Wipro are doing work that is critical to organisations and may not be postponed so easily. On the other hand, second rung companies like Aptech, SSI could find the going increasingly difficult if US companies decide to cut IT frills in a big way. In such a scenario, the chunkier projects could go to the top rung companies.

In any case that is the good sign for IT sector as also IT funds. However, fund investors need to look at diversified growth funds and IT funds with exposure to top rung IT companies. They would do well to avoid investing in funds that have invested in second rung companies.

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