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.
Software 2005: Higher, faster, stronger! - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Dec 30, 2005

    Software 2005: Higher, faster, stronger!

    The year 2005 was a highly eventful year for the Indian software industry. There was certainly no shortage of action. Mergers and acquisitions were made, top-tier companies continued to grow at a robust pace, big deals were signed and the laggards continued to under-perform.

    The market picture
    As regards market performance, the CNX IT index has, in fact, been a laggard compared to the benchmark index, the S&P CNX Nifty. This has been despite the strong performance of top-tier software companies. It should be noted that numerous mid-sized companies under-performed relative to the large caps, thus, pulling down the overall index's performance relative to the benchmark, the CNX Nifty.

    The large companies
    The top-tier software companies performed a lot better compared to the mid-sized companies. We have always maintained that we believe it will be these companies that will gain the most from the offshore outsourcing wave that is currently sweeping the globe. Business fundamentals remain strong, a greater share of the client's wallet is going towards a meaningful offshoring strategy, scalability is increasing all the time and a definitive movement up the value chain is being noticed. All these factors point to better times ahead for these players. This is what is being reflected in these companies' stock prices. Satyam, for example, soared by nearly 75% in 2005. Of course, as regards valuations, some stocks appear to have run ahead of themselves. But the moot point to note here is that we continue to believe in the longer-term growth story of the large software companies.

    The mid-sized companies
    The mid-sized companies have been clear underperformers in 2005, with the notable exception of i-flex, which was boosted by enterprise software giant, Oracle's acquisition of Citigroup's stake in the company. But overall, it is clear that these companies are, by and large, struggling to keep pace with the larger companies. In fact, the gap between the top-tier companies and the mid-sized firms is increasing with each passing year. This has been clearly reflected in their stock performances, with the markets giving a 'thumbs-down' to some of these companies. In fact, companies like Polaris saw their stock prices tank by as much as 26% during 2005.

    Certain trends that played out also point to an element of consolidation taking place in the industry. Numerous mergers took place and the biggest of them all was, undoubtedly, Oracle acquiring Citigroup's stake in i-flex. Global majors like Cap Gemini have also expressed interest in buying out companies in India, firstly, to get a credible offshore base and secondly, to gain access to strong skills. This points to an increasing trend, whereby mid-sized companies will either have to merge with each other, or get taken over by other firms.

    Conclusion
    While we continue to remain positive on the industry growth prospects as a whole, we believe that this growth will continue to remain concentrated among the top-tier companies. Only those mid-sized companies that have niche areas of operations and that are not 'me-too' companies will hold their own and grow. Consolidation could be a major theme come 2006, as acquisitions in the industry start to build up in a more meaningful manner. Global majors are also expected to ramp up offshore in a big way and majors that as yet do not have a presence offshore will scout for acquisitions to skip the learning curve. All in all, we appear set for exciting times in 2006 as well.

     

     

    Equitymaster requests your view! Post a comment on "Software 2005: Higher, faster, stronger!". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working (Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    The Key Factor Pushing Gold Up These Days (Outside View)

    Aug 21, 2017

    PersonalFN explains the chief factor pushing gold prices up of late.

    How Unique Are the Companies You Invest In? (The 5 Minute Wrapup)

    Aug 21, 2017

    One of the hallmarks of successful investing is to look out for companies that have a unique and enduring moat.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    More Views on News

    Most Popular

    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.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    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.'

    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.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    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 SENSEX


    Aug 21, 2017 (Close)

    MARKET STATS