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Sensex Trades Volatile; IT Stocks Lead Gains

Tue, 20 Feb 01:30 pm

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After opening the day flat, share markets in India witnessed choppy trading activity and are presently trading above the dotted line. Sectoral indices are trading mixed with stocks in the realty sector and stocks in the pharma sector trading in red. While stocks in the IT sector are trading in green.

The BSE Sensex is up by 95 points (up 0.3%) and the NSE Nifty is trading down by 22 points (up 0.2%). Meanwhile, the BSE Mid Cap index is trading up by 0.2%, while the BSE Small Cap index is trading up by 0.1%. The rupee is trading at 64.79 to the US$.

In news from the IT sector. Information Technology sector body Nasscom expects the IT and BPO industry in the country to grow around 7-9% in FY19.

Nasscom expects Indian IT industry's export revenues will grow to US$ 135-137 billion from the US$ 126 billion estimated for the current year.

Whereas the domestic revenues are expected to grow by around 10-12% to US$28-29 billion in FY19.

For the IT sector as a whole, Nasscom sees a continuation of global headwinds and uncertainties.

The body Nasscom announces its annual growth forecast on the sidelines of its flagship event, NILF. It, however, deferred its announcement last year owing to global challenges and uncertainties in the business.

BSE IT Index vis-a-vis Sensex

The Indian information technology (IT) sector has been through the doldrums over the past few years. IT giants have seen flat to negligible growth in the past 3-4 years. However, going by the IT index performance in the past few months, there seems to be some fight left in the IT space. The BSE IT index has grown by 8% since August 2017 as compared to Sensex growth of 6% in the same time period.

This is in stark contrast to its performance over the past four years. The Indian IT Index has returned a meager 19% returns as compared to Sensex returns of 58% since 2013.

The sector has seen a major disruption in the business model. The shift from traditional IT services like application maintenance to analytics, cloud computing has hurt growth for almost all major IT companies.

Recent protectionist policies announced by the American government since Trump's appointment have further escalated their problems.

As a result, major Indian IT companies are trading at multi-year low valuations. Also, IT companies are moving towards an efficient business model whereby manpower for mundane tasks are being replaced by automation. It will be an interesting space to watch out for in the days ahead.

Moving on to news from the . According to a leading financial daily, state-run Energy Efficiency Services Ltd (EESL) will soon float another global tender for 10,000 electric vehicles to be deployed across the country for government use.

EESL, which is a joint venture of PSUs under the power ministry, will also sign a memorandum of understanding (MoU) with the government of Andhra Pradesh this week to supply 10,000 electric vehicles.

EESL has been instrumental in the government's push for EVs in India. With two global tenders of 10,000 electric vehicles each in less than a year, there has been enough interest from the state and central governments on adoption of e-mobility and making it mainstream.

Currently, electric vehicle sales too are low in India, rising 37.5% to 22,000 units in the year ended 31 March 2016 from 16,000 in 2014-15. Only 2,000 of these were cars and other four-wheelers, according to automobile lobby group SIAM.

The government wants to see 6 million electric and hybrid vehicles on Indian roads by 2020 under the National Electric Mobility Mission Plan 2020.

The government is targeting to have all cars propelled by electric engine by 2030. The target is more daunting than in many advanced countries.

According to the industry, the 2030 target would require eight to ten times the global stock of such vehicles. India would need to sell more than 10 million electric cars in 2030, compared to 5,000 electric vehicles India had on the road in 2016.

As you can see from the chart above, India is barely visible compared to other developed countries when it comes to battery cars.

As an article in Business Standard suggests, such a big jump in scale for the auto industry in 13 years seems difficult. The basic infrastructure is missing. There are not enough charging stations. For this massive shift, the charging stations will need to be as ubiquitous as petrol pumps.

Another issue is the price of the lithium ion battery, which constitutes 30% to 40% of the cost of the car. For this plan to succeed, the price of the battery needs to come down.

The auto industry is already facing regulatory headwinds. The shift from BS-IV emission norms to BS-VI has been two years ahead of schedule without an intermediate stage. The government, if it is serious about such ambitious targets, should offer the necessary infrastructure support and do its bit for a smooth transition.

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