Today is Infosys' day but just in case you are not exactly feverish with excitement, you are forgiven. We understand. In fact, I do not remember the last time investors approached this traditionally important earnings day with so much apathy and disinterest. Barring a few brokerage analysts and a couple of die-hard contrarians, no one has time for the IT sector today. While that does not necessarily make it a great contrarian buy it certainly is worth a few minutes of reflection, if no more.
Nothing much will happen in the current quarter. At best the earnings will be a percentage point higher or lower: nothing that will make or break the sector. This sector is about perception now, not delivered numbers. Having said that, the pendulum may have swung too much to the other side. The weight of the IT sector in the Nifty has plunged to 8 per cent, the lowest in a long while. Every analyst who was bullish on this sector one year ago is busy scaling down price targets. Since the market is a wee bit ahead of this smart set, contrarian instincts are being nudged. The sector is cheap, under-owned, quite universally shunned and managements are strong. It is a tempting cocktail for a contrarian.
But can IT become a stock market leader again? I doubt that very much. Over a period of time, the rupee is likely to strengthen and the US woes will sentimentally, if not materially, keep doubts alive for the sector. Hardly the perfect environment for outperformance. In any case, steady state IT earnings growth could be around 20 per cent-odd, which is solid but not the stuff that can blow the lights out. It also has a "yesterday's hero" tag on it which is a heavy cross to carry in a bull market focused on new growth sectors. What is deserved though is a pullback. Infosys perhaps does not deserve to jump back to Rs 2,400 but a case for getting back to Rs 2,000 can be constructed this year. If that happens, some time in 2008, one will make 20 per cent from here. If that is too boring, forget it. Banks look better.