Wednesday, August 10, 2011

Indian IT Sector

Shares of big IT companies fell sharply in trade after the US credit rating was downgraded by S&P on Friday. All the three top IT companies, TCS, Wipro and Infosys, witnessed a huge fall in their share prices on the BSE as these companies earn a major chunk of ther revenue from US and Europe.

"One should buy TCS or Infosys because I do not think business will be impacted so much in the short run, while the long tern story remains intact", says Raamdeo Agrawal, Director and Co-Founder, Motilal Oswal Financial Services in an interview with ET Now.

The US and Europe are the two biggest markets for Indian IT firms. TCS, Infosys and Wipro rely on the US and European markets for about 60 per cent of their revenue. Any slowdown there could straight away affect domestic IT companies having their presence globally.

While most IT companies have expressed caution in the past few months post their quarterly results in the wake of ongoing European debt crisis and high unemployment in the US. However they remain confident of being able to maintain their growth momentum

"On evaluation of IT companies and some of the frontline majors, their business prospects, business model and the possibility of getting new business remain robust and I find that fundamentally things have not changed as much", says Deven Choksey, MD, KR Choksey Securities in an interview with ET Now.

"The valuation of these companies have stayed around 20 plus price earning ratio which has started to come down more because the funds which invested into these particular companies are the trading funds or the index funds and they started pulling out money because of the want of money back home", said Deven.

"However, in comparison to other markets and stocks where the valuations has become far too attractive, shares in IT companies are still reasonably priced", says Deven. "Fundamentally things are not looking as negative as it is being feared about with the fall in the prices of IT companies", Deven further added.

Leading players like TCS and HCL Technologies have posted stellar growth numbers in the past few quarters on the back of steady demand for outsourcing services.

Our Recommendation :

Long term investors should buy TCS around 950 levels, Wipro @ 325, HCL Tech @ 400 levels. The July - Sept Quarter results should be good and hence one can hold for a 15% return in next 2-3 months

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