All through last year, IT indices— BSE IT and Nifty IT index gained 20-21 percent in 2017. Interestingly though, this year, they have grown around 11 percent in the past three months i.e. since January 1, 2018.
After delivering stellar returns in 2017, investors in the Indian market are likely to have been taken aback by the performance in this year so far. Indices have mostly given negative returns, with frontline indices having fallen around 2 percent so far.
Experts have largely attributed a host of domestic and global factors as one of the key reasons behind this fall such as global weakness post protectionist policies in US and banking scam back home.
Having said that, there is one sector that has stood against the tide and given very healthy returns to investors— information technology. A contrarian/defensive bet in these from the start of the year could have helped them make money in an otherwise selloff market.
In fact, investors in these stocks right through 2017 and 2018 have been big winners. All through last year, IT indices— BSE IT and Nifty IT index gained 11-12 percent in 2017.
This year too the sector has almost replicated the annual performance in the first three months of this year i.e. since January 1, 2018. Both BSE IT and Nifty IT have returned up to 11 percent.
In fact, on a stock specific basis, few stocks have gained up to 100 percent in some cases. GSS Infotech, Infinite Computer, Aqua Pumps, Svam Softwares, and L&T Infotech gave these returns.
Source: Ace Equity
A look at performance of IT stocks between January 1, 2018 and March 9, 2018 reveals that major IT names have managed to perform well. For instance, Mastek, NIIT Tech, Tech Mahindra, Polaris Consulting, TCS, Infosys, Hexaware, HCL Tech, and Cyient, among other big names are a part of top 50 companies to have made given positive returns.
Going forward, experts believe that IT show could get better on the back of attractive valuations as well as promising business prospects.
Broking firm Edelweiss believes that pain in the sector could well be behind us. It attributes this to five key reasons.
i) Peak of cloud-led disruption is behind & legacy services are set to stabilise/grow hereon. Moreover, cloud migration & customisation itself will open new revenue streams
ii) Key drivers of past—global spending & market share gains in global sourcing for Indian IT services—are still resilient, although with a digital bias
iii) Negative impact of dip in oil prices & transition from brick-and-mortar to online model, which impacted energy and retail verticals’ growth is now behind;
iv) Recovery in US’ economy & burgeoning acceptability of outsourcing in Europe entail huge potential upside for Indian players
v) Impact of proactive actions triggered by fear of tighter visa norms (like increase in local hiring) & rupee appreciation is reflected in margins and entails upside risks going forward.
Additionally, it has revised its target price upwards on major stocks in the sector. It sees an upside potential of up to 17 percent in this case.
So, does this mean the tide has turned for IT firms? Should investors look at this as an opportunity?
"Even the tailwind of weakness in rupee against the dollar over last few weeks is also likely to add to their top line numbers. Hence select largecap and midcap IT stocks have much more potential to outperform in the coming quarters," JK Jain, Head of Equity Research at Karvy Stock Broking told Moneycontrol.(With inputs from Ritesh Presswala)