Aug 26, 2009|
IT stocks back in vogue
IT tops the return charts
A couple of months back, hardly anyone would have predicted that the Indian IT sector would once again emerge as investors' blue eyed boy. But the fact remains that the Indian IT sector has staged a phenomenal recovery and currently, even large caps have given phenomenal returns if one were to track their performance since the markets hit their recent lows in March 2009. Large cap IT stocks like Wipro and TCS have provided returns of 180% and 140% respectively since the lows of March, and in the process, have comfortably beaten the benchmark Sensex, that has risen by around 90% since then.
The performance of some mid cap counters has been even better, with stocks gaining as much as 500%. However, we believe that tremendous value still lies in some of these stocks, but only if one is willing to take a long term view. With companies in the US embarking on a major cost cutting drive as they look to save money, outsourcing can no longer be viewed as a luxury but a necessity. Secondly, with Indian companies themselves looking to cut costs, it has given an added boost to their profitability. These factors have gone a long way in improving the standing of the sector, which has been rewarded in the form of higher earnings multiples and thus, above par returns.
Bernanke gets second term
Ben Bernanke, the man who history will remember for playing a pivotal role in averting the second great depression has been reinstated by US President Obama for a second term. "Ben approached a financial system on the verge of collapse with calm and wisdom, with bold action and out-of-the- box thinking that has helped put the brakes on our economic freefall," was how Obama chose to put it across. His reinstatement effectively means that just as he oversaw creation of what most are arguing as one of the biggest liquidity bubbles, he is also likely to oversee its sop up as and when the situation demands it.
From the looks of it, that particular day of reckoning may not be too far away. In fact, as per the man's own admission, the US economy is well on its path to recovery and it seems to have put the worst behind. However, there are no real threats, namely inflation, as of now and he is most likely to continue with his loose monetary policy. But the more the US economy heads towards a recovery, the more will be the tendency of inflation to raise its head and this is where Bernanke's role will be crucial. Although he has argued that his team is prepared for any such eventuality and has also highlighted in detail as to how he will achieve such a task, it's far easier said than done.
If he takes measures earlier than required, he risks sending the economy into another downturn and if he delays it, it could lead to creation of another asset bubble, whose eventual bursting could lead to a hard landing for the economy. Looks like the man's sterner tests lie ahead of him. It's over to you, Mr. Bernanke.
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