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IT back in focus on D-Street, will the latest surge in stocks sustain?


By DK Aggarwal

The information technology sector has witnessed a change in its traditional business model with the share of inheritance business coming down with each passing year. The nature of business of the IT companies has changed and digitisation and automation have led to a change of dynamics. India is quickly becoming one of the world's greatest technology hubs.

Undoubtedly, new business models, technologies and addition of newer markets are powering vivacious growth in the sector. India is in the middle of a digital transformation and traditional businesses are being challenged by technology-led agile enterprises. With the rise of technologies such as digitisation, block chain, cloud computing, internet of things and progression to big data, algorithms, machine learning and artificial intelligence (AI), demand is growing for new technology-based services.

Also increased focus on research & development (R&D) by IT companies in India has resulted in rising number of patents being filed by them, which, of course, is good news for the sector.

There are expectations that industry spending on IT products and services will continue to be led by sectors such as financial services (banking, insurance, and securities and investment services) and manufacturing (discrete and process).

Over the years, verticals like manufacturing, telecom, insurance, banking and finance have been the growth drivers for the sector. Also now with the introduction of new policies for healthcare, e-commerce and retail, these sectors are expected to grow at a faster pace in the coming years, thus accelerating revenue growth for IT services companies. Of the total business of software services provided by India across the globe, services provided through foreign affiliates of Indian companies have steadily increased.

Meanwhile, the global economy is growing at a pace, which is at a six-year high, and global demand for technology and business services continues to accelerate on the back of robust economic trends as many enterprises focus on all things digital.

The changing technology landscape has resulted in shrinkage of deal sizes, bringing mid-sized and large-sized players on to a level-playing field. Undoubtedly, strong demand for digital transformation and cloud-based services will continue to push the sector and going forward, it will continuously remain attractive.

Many IT companies are now willing to shift gears according to the new challenges being faced by the sector. FIIs have added domestic software firms to their holdings in quite generously over past few months. In recent weeks, IT stocks have gained a lot of attention after Indias largest IT services company, Tata Consultancy Services, reported a 16 per cent growth in revenues and 24 per cent growth in net profit for the first quarter of FY19.

Stocks such as TCS, Infosys, Wipro, HCL Tech, Hexaware, Tech Mahindra and Persistent are likely to see good runup from here on.

(The author is Chairman and MD, SMC Investments and Advisors Ltd. Views and recommendations expressed in this section are his own and do not represent those of ETMarkets.com. Please consult your financial advisor before taking any position)

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