Gartner cuts the 2015 IT spend to 2.5% in Constant Currency from 3.1% earlier: Angel Broking

Views of Ms. Sarabjit Kour Nangra (VP Research - IT, Angel Broking)

Gartner cuts the 2015 IT spend to 2.5% in Constant Currency from 3.1% earlier:

"In a latest report, Gartner puts the Global IT spending in constant-currency terms to grow at 2.5% this year, compared to April 2015's estimate of 3.1%. Thus, in constant-currency terms, forecast growth for 2015 is down by only 0.6 percentage points. This is in contrast to the 1.9% growth in 2014. In the report, the company has stressed that this is not a market crash, but is an illusions that large swings in the value of the U.S. dollar versus other currencies can create.

Thus factoring the currency impact, the IT spending is expected to shrink 5.5% to $3.5 trillion in 2015 as a strong U.S. dollar pressures vendors, CIOs delay hardware upgrades and companies embrace more software-as-a-service offerings. That's down from the firm's April forecast, which projected spending would fall 1.3% to $3.66 trillion. Thus, a strong dollar may cause some vendors to raise prices in order to protect their margins.

While CIOs aren't noticeably cutting budgets, Gartner said higher prices might lead companies to buy from local vendors or purchase cheaper hardware. In terms of domains communication service, is likely to remain under pressure, while Enterprises solution is likely to exhibit strength, while the IT services is likely to show moderate growth.

The changed forecast in constant currency is slightly different from the earlier projected growth; we are not changing our view on the Industry back of the same. Thus we expect the Industry to grow at around 11-13% on constant currency terms in FY2016 and 10-11% on long term basis. Also, the sector has not seen any significant up move and valuations are cheap given the growth and profitability dynamics. The large cap companies on an average trade at around 14-15xFY2017E earnings. Given the profitability, the sector should trade at higher valuations. Thus we maintain our ratings in the sector with Top picks as Infosys and TCS, with a price target of INR 1315 and INR 3168 respectively."

Source : Equity Bulls

Keywords