X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Indian IT: Have faith - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • May 21, 2004

    Indian IT: Have faith

    Indian IT stocks have had a bad, or in soft terms, 'not-so-good' 2004 so far. While there are factors like the outsourcing backlash in the US (the largest market for these companies) that have raised doubts about faster volume growth, the overall uncertainty in the Indian stock markets has also cast its shadow on these stocks (see graph below).

    There has, indeed, been no fundamental shift for companies from the Indian software sector. In fact, these have posted impressive numbers for the full year ending FY04, carrying on the good work for the last two quarters (3QFY04 and 4QFY04). These two quarters, specifically, saw billing rates stabilise and volume growth improving. Whats more, companies like Infosys, Wipro and Satyam also managed to increase contribution from high value services (like package implementation and systems integration) to their total revenues. For example, contribution of 'new' services for Infosys increased from 35.0% of consolidated revenues during 4QFY04 to 36.3% during 4QFY04. This move towards high-end services has not only helped these software majors cap the decline in overall billing rates, it has, more importantly, brought their managements more closer to the clients (as these services have a higher onsite content, at least to start off with).

    As far as the outsourcing backlash is concerned, we would like to reiterate that while this may hurt valuations in the short to medium term, over a long-term, economic sense is likely to prevail. This is because, as global corporations, in their aim of becoming more competitive, would continue to outsource their non-core operations to low cost countries like India that also provide benefits of high-quality and timely execution.

    There is another fact that is likely to benefit Indian software companies and seems to be missing the eye. It is the possibility of a rise in the US interest rates, which could strengthen the US dollar or, more simply, lead to a depreciation in the value of the Indian Rupee. This would have a consequent effect to on the bottomline of Indian software companies that have been hurt, over the past two years, by the appreciation of the Rupee. For instance, the management of Infosys is expecting a Rupee/US$ rate of 43.4 (an appreciation of around 5% from FY04's average rate of Rs 45.7) for FY05 and has taken this into account to project an EPS of Rs 224 for the fiscal. If we remove this effect, i.e., we keep the exchange rate constant at Rs 45.7 per US$, the EPS jumps to Rs 267 (implying a whopping 44% growth over FY04 EPS).

    As far as valuations of domestic software majors are concerned, most of them are trading at attractive valuations, but only from a 2-3 years (FY06 onwards) perspective. While valuations might be affected in the short term due to eventualities (read, backlash in the US), fundamentals are likely to play a more important role in the long-term. Thus, the need of the hour for investors (and those waiting to be) is to invest with a long-term horizon. Also, they need to invest in only those companies that have visionary managements and sound business models. Returns will, then, take care of themselves.

     

     

    Equitymaster requests your view! Post a comment on "Indian IT: Have faith". Click here!

      
     

    More Views on News

    Tech Mahindra: Our Revised View (Quarterly Results Update - Detailed)

    Aug 2, 2017

    A better than expected turnaround in performance results in a change in view.

    Wipro: A Decent Start to the Year (Quarterly Results Update - Detailed)

    Jul 27, 2017

    Digital services drive growth for Wipro in 1QFY18.

    Infosys: A Decent Start to FY18 (Quarterly Results Update - Detailed)

    Jul 14, 2017

    Infosys starts FY18 on an encouraging note with a stable performance.

    Ankit Shah's First Five Insider Recommendations (The 5 Minute Wrapup)

    Aug 5, 2017

    How to get exclusive insider recommendations from Ankit Shah.

    TCS: Currency Volatility Plays Spoilsport (Quarterly Results Update - Detailed)

    Jul 14, 2017

    TCS starts FY18 decently despite an adverse currency impact.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE IT


    Aug 18, 2017 (Close)

    COMPARE COMPANY

    MARKET STATS