Q1FY14 - Quarterly Aggregate - Information Technology Sector - GEPL Capital

The IT sector heavyweights put up a decent performance in Q1FY14 despite tightening by several large American companies. The BSE IT Index has gained 22% ever since Infosys announced its results on 8th July, 2013.

The data trickling from the US is mixed; a sustained economic recovery or return to old growth rates seems distant for now. The easy money policy (Quantitative Easing) has held up US economy so far. We feel that QE will remain for some more time given that inflation and unemployment numbers are still not close to Federal Reserve's targets. INR is expected to remain under pressure for a couple of quarters at least given the low growth trajectory of Indian economy, rising subsidies and strengthening of USD due to hopes of economic recovery in the US.

Clients are bargaining for lower rates from vendors (Indian IT companies in this case) and have demanded shortening of project cycles. Challenges remain by way of stricter visa norms as are being proposed by US law-makers. Also, Indian IT companies have doled out salary raises to keep attrition in check. There is precious little that these companies can do to avert both these occurrences. US visa norms are not within companies' reach while salary raise has become a necessity given high inflation rate in the economy and depressed investment sentiment. Both these factors could impact margins of IT companies.

To summarize, we feel that the Indian IT sector would continue to do well on the back of INR weakness and US recovery hopes. Other than Pharmaceuticals and FMCG (selected), IT seems to be the only sector where investors can hope for some meaningful return on their investments.

Source : Equity Bulls

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