Over the last one week, I have spent quite a bit of time interacting with the high priests of Indian IT : top managements of Infosys, TCS, Wipro, HCL Tech and Satyam. CEO mindreading is a tough and tricky job but if I had to stick my neck out, I would certainly say they appear confident about this year. When managements are unsure, their body language is far more hesitant. I didn't see much of that with any of the top IT czars.
There is every indication that this will turn out to be another robust growth year for Indian IT companies. In FY07 all the top 5 companies clocked more than 40 per cent growth in earnings. Even if one tempers down expectations on account of a higher base and the rupee, 30 per cent plus should be easily achievable. When you have a combination of stable business models with low cyclicality or interest rate sensitivity, strong managements and 30 per cent growth visibility, it is hard to turn a blind eye to the sector. What the top managements have effectively done this week is to debunk the whole bogey of a US slowdown-led IT crunch. Since these are managements who understand the perils of a failed guidance, one would tend to believe their optimism rather than wallow in imagined fears. Innocent, till proven guilty, as they say.
True, the rupee remains unpredictable, but one has to work with scenarios. Even if one takes 40 as a dollar-rupee rate for this year and works backwards, it would appear that earnings expectations would not be dented too materially. The more I look at it, the more it appears that the chances of making a solid 20 per cent plus return from the sector this year are pretty high. Large-cap IT is no longer the explosive growth engine it used to be but it could be a great compounding machine for conservative investors.