Software: Bigger, the better! - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Software: Bigger, the better!

Dec 21, 2004

In the rise of Indian equity markets over the past six months, stocks from the software sector have hogged the limelight. However, rise in stocks from the sector this time seems to be different story from what has been experienced in the past. This time around, market participants have concentrated only on the leading players from the industry rather than practicing an all-out approach of picking 'whatever was there to be picked'! In such times, Indian software stocks have outperformed their global peers (read, the US), especially if one were to consider their relative performances over the past six months (see chart below).

As seen in the adjoining chart, for comparison purposes, we have taken CNX IT for India and NASDAQ for the US. Increasing investor optimism towards the Indian offshoring story has fueled the faster rise in CNX IT vis--vis the NASDAQ. While there were concerns raised during the earlier part of 2004 with regards to the ire that offshoring had attracted in the US presidential debates, the same were calmed through pronouncements made by the managements of Indian software companies while announcing their respective 1QFY05 results. It was indicated that the Indian offshoring story was here to stay and consequently, Indian companies likely to benefit from the same. The buoyancy that followed even shirked fears of a slowdown in technology spending, as cited by earning downgrades from some prominent technology majors, including Intel and Cisco.

We have been optimistic about the Indian offshoring story gathering pace as outsourcing becomes mainstream. This optimism is fueled by the belief that, as more and more global corporations vie to improve profitability through offshoring their non-core operations, Indian software companies would be key beneficiaries. However, this is not to say that all companies will benefit from this opportunity. Companies with proven execution capabilities and scalable business models will lead the pack. Moreover, innovative offshoring models, like 'modular outsourcing' as followed by Infosys, are likely to help Indian companies in widening the gap between them and the global technology MNCs that are trying to replicate the Indian offshoring model.

Now, despite the high growth prospects of the leading Indian technology players, valuations that are accorded to them have reached high levels (see adjoining chart). While the rapid rise in stock prices in the past six months can be assigned the responsibility of these high valuations, there is no gainsaying the fact long-term investors can still benefit from a selective approach to stock picking from among the software stocks.

At the same time, if stocks like Silverline and DSQ Software are gaining sharply day after day, probably it is time to look back at the tech bubble of 2000 that caught investors napping. In the case of software sector, the bigger the better!

  • Key things to look at before investing in a software stock


  • Equitymaster requests your view! Post a comment on "Software: Bigger, the better!". Click here!

      

    More Views on News

    TCS Share Price Down by 5%; BSE IT Index Down 3.4% (Market Updates)

    Sep 24, 2020 | Updated on Sep 24, 2020

    TCS share price is trading down by 5% and its current market price is Rs 2,450. The BSE IT is down by 3.4%. The top gainers in the BSE IT Index is ECLERX SERVICES (up 1.5%). The top losers is TCS (down 5.2%)..

    MPHASIS Share Price Down by 5%; BSE IT Index Down 2.2% (Market Updates)

    Sep 24, 2020 | Updated on Sep 24, 2020

    MPHASIS share price is trading down by 5% and its current market price is Rs 1,377. The BSE IT is down by 2.2%. The top gainers in the BSE IT Index is ECLERX SERVICES (up 1.2%). The top losers is MPHASIS (down 5.2%)..

    The BSE IT Index Down 2% ; RAMCO SYSTEMS Among Top Losers (Market Updates)

    Sep 24, 2020 | Updated on Sep 24, 2020

    The BSE IT Index Down at 19,804 (down 2.1%). Among the top losers in the BSE IT Index today are RAMCO SYSTEMS, DATAMATICS GLOBAL and HOV SERVICES. Meanwhile, the BSE Sensex has plunged 1.5% to 37,304.

    QUESS CORP. LTD Share Price Down by 6%; BSE IT Index Down 1.4% (Market Updates)

    Sep 24, 2020 | Updated on Sep 24, 2020

    QUESS CORP. LTD share price is trading down by 6% and its current market price is Rs 373. The BSE IT is down by 1.4%. The top gainers in the BSE IT Index is MINDTREE (up 0.5%). The top losers is QUESS CORP. LTD (down 6.0%)..

    More Views on News

    Most Popular

    How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

    Sep 11, 2020

    This is how you can apply the greed and fear cycle in the market to pick stocks.

    Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

    Sep 17, 2020

    This leading household brand will profit big time in a post covid world.

    This Could Be the Best September for Auto Stocks (Profit Hunter)

    Sep 11, 2020

    Here's why I think this month could be a great for auto stocks.

    What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

    Sep 18, 2020

    Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

    More

    Covid-19 Proof
    Multibagger Stocks

    Covid19 Proof Multibaggers
    Get this special report, authored by Equitymaster's top analysts now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE IT


    Sep 24, 2020 02:36 PM

    S&P BSE IT 5-YR ANALYSIS

    COMPARE COMPANY

    MARKET STATS