Jul 21, 2003|
Software: The ‘where to invest’ syndrome
Software stocks, in their very own way, have been largely volatile in recent times. To get a view of retail investors’ perception about stocks of Indian IT companies, we asked them where did they find value in the software sector – large-cap stocks, mid-cap stocks, or did they find no value at all.
A look back…
Before going into the response of our viewers, why this poll at this juncture? There is a sea change in investor sentiment towards technology stocks post Infosys’ 1QFY04 results as compared to April 2003 (the day Infosys announced its FY03 results on April 10th, 2003, the stock tumbled by almost 25%). The adverse reaction was not restricted to Infosys alone, but the BSE Tech index also lost significantly (as can be seen from the graph below). Since then, even top rung tech majors have been viewed with a sense of caution.
The response to out poll is not surprisingly mixed, mostly in favour of large-cap stocks. 42% of the respondents polled that they see value in large-cap stocks, which is a good sign. 38% still opted for mid-cap stocks, despite the mayhem in the market. The remaining 20%, however, did not find value in Indian software stocks. Past experiences are likely to have played their part.
The recent upheavals in Indian IT stocks bring out a stark reality. While the effect on stock prices of the top-rung Indian IT majors have been less severe (or they have recovered in the last quarter), mid-caps have had mixed fortunes. After rising post FY03 results, the 1QFY04 performance of some of the tech companies like Mastek has once again highlighted the risk of investing in smaller companies. This is one of the reasons why investors have to place higher weightage on the quality of management. It is not surprising to see that smaller rung tech stocks are once again heading south (or likely to head south sooner or later).
The poll results exhibit one important fact that investors in IT stocks, going forward, are likely to pick and choose from among companies that provide them with ‘realistic‘ value rather than ‘unrealistic’ growth promises. This downturn has been an eye-opener for not only Indian software companies but also for retail investors in general. Investors seem to have realized how important it is to stick with quality companies. By quality, we mean the management’s ability to foresee trends and position themselves accordingly.
Realism seems to be setting in among investors. It is important to acknowledge the fact that the software sector has its own set of variables that have a major say when it comes to determining long-term survival of a company. It is better to be safe than sorry.
Please click here to read our sector primer:
Identifying a software stock: Do’s and Don’ts
More Views on News
Aug 2, 2017
A better than expected turnaround in performance results in a change in view.
Jul 27, 2017
Digital services drive growth for Wipro in 1QFY18.
Jul 14, 2017
Infosys starts FY18 on an encouraging note with a stable performance.
Aug 5, 2017
How to get exclusive insider recommendations from Ankit Shah.
Jul 14, 2017
TCS starts FY18 decently despite an adverse currency impact.
More Views on News
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 10, 2017
Bitcoin hits an all-time high, is there more upside left?
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: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407