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Infotech sector shakes off US recession blues

business Updated: Oct 11, 2009 20:41 IST
Devraj Uchil

With pricing pressure showing signs of easing and volumes on the rise in the September quarter, experts believe that IT sector is set to bounce back from the slump caused by the US recession. Improved sentiments are also contributing to changing investor and market outlooks.

Happy days again

* Pricing pressure easing in key markets like the US

* Investors turn optimistic as earnings prospects brighten
n India’s market-share in global IT services could rise from the current 5%

* TCS, Wipro, Infosys and HCL shares have outperformed the Sensex this year

Motilal Oswal Securities Ltd expects the sector to grow by 12.7 per cent year-on-year, while Mphasis, Wipro and TCS would report strong double-digit earnings growth. “The market would take growth of more than 4 per cent quarter-on-quarter positively,” said Vihang Nayak, IT Analyst at the equities research firm.

The effect of foreign exchange fluctuations is also likely to be less accentuated as compared to first quarter of 2010, giving a cross currency benefit of 1-1.5 per cent across companies, based on their invoicing proportions, analysts say, though IT sector executives are wary of the strengthening rupee that erodes earnings in US dollars.

“We feel pricing pressure is easing as there are early signs of a pick-up in volumes. Any management comments to this effect could lead to a further re-rating of the sector,” said Ratnesh Kumar, CEO-Institutional Equities, Anand Rathi Financial Services.

Motilal Oswal believes frontline Indian IT companies are better placed to sail through near-term adversities.

With India holding about 5 per cent of the global IT services market share, experts are bullish of the sector in a long-term perspective, given the country’s basic strengths in terms of both scale, competitiveness and technological

Improved economic conditions in key developed markets, stability in demand and cheaper valuation have led to TCS, Infosys, Wipro and HCL stocks outperforming the Sensex in the range of 29 per cent to 118 per cent this year so far.