IT Sector Analysis
After Covid we all knows one sectors is booming like anything. All business is transfering into Digitalizations. All new technologies like Web 3.0, Metaverse, A.I, Machine learning, Blockchain, etc helping to grow faster economy. In this article I’m going to share about IT sector overall market, some IT companies earnings call and some mutual funds invest in IT specific.
Commentary by expert: Harsh Patel
Nowadays new ice-breaking technologies like artificial intelligence, blockchain, machine learning and many more are in very much demand. In the upcoming years these technologies will change the Internet. As revenue is higher in Its industry it will be beneficial for country’s economy as well. People like advanced gadgets like smart watch, self-driving cars etc. which will be important part of IT growth. Also, in upcoming years Augmented and virtual reality and 3D technology will be in demand.
Looking at the demand of technology it seems like IT will have very bright future, it will create more jobs with better pay scale.
Industry Overview:
Market Size in India H12021= US$ 6.96bn & In 2025 projected= US$ 19.93bn
The industry accounted 8% of India’s GDP in 2020
Industry body NASSCOM has recently pointed out that before the pandemic, Indian IT companies were reporting annual growth rates of around 6–7%, which have now increased to around 15–20%
IT & BPM is the second leading sector in receipt of private equity (PE) investments in India. In 2021, PE investments in the IT sector stood at US$ 23.4 billion. India’s IT startup ecosystem has received record investments of nearly US$ 36 billion in privately held companies in 2021, up from US$ 11 billion in 2020.
(Source: IBEF Report)
INFOSYS Earnings Call Key Points:
- Annual growth of 19.7% in constant currency terms, which is the fastest growth in 11 years
- Each of business segments grew in double digits
- Infosys recruited 85,000 college graduates in this financial year
- operating margins of 23.0%
- Free cash flows for FY2022 crossed US$3 bn
- Capex increased marginally to US$290 million
- Main concern is competitive compensation hike, wages inflation hike is hitting cost optimizations
TCS Earnings Call Key Points:
- Annual revenue growth at 16.8% in rupee terms
- Operating margin for the year was at 25.3%
- Y-o-Y growth of 15.8%
- TCS recruited an all-time high net addition of 103,546 for the year
- TCS TwinX™, AI-based digital solution had 6 wins, TCS OmniStore™, AI-powered universal commerce suite had 3 new wins, TCS Optumera™, AI-powered merchandise optimization suite had 2 new wins of deal.
- Same concern is with TCS also salary hike
Digital / Technology Fund in India:
above excel pic. shows statistical measures and trailing returs of four fund. From these analysis conclude that Tata Digital India Fund and ICICI Prudential Technology Fund is good for investment but with many conditions.
If your portfolio allows you to invest in IT specific sectors (if you already not invested), Second things is almost all four fund has invested 1/4 AUM in just one stocks i.e INFOSYS, here risk comes that if INFOSYS not perform well then high chances of fund will not perform better, Third things is as name of fund it invest only in IT/Digital so you may not invest more that 5% of your portfolio (you have to check your current portfolio status).
My view:
No doubt IT (Web 3.0) will change the World, but it will may take time to companies to perform in the new era. Global companies like Meta is doing in this field, In India TCS also include in earnings calls about AI and other deals. Major problem come to companies is increasing wages inflations, Mismatch in Demand and Supply of skilled labour at that time company have to pay higher salary to employee (as discribe in INFY & TCS earning calls). Also Indian Fund has very less portion invested in Global IT companies, it may mis oppertunity. Good things is INFY & TCS has good free cash flows and doing CAPEX also. You must invest in IT sector as permit by your portfolio.
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