Is The Party Over For Indian IT Companies? Some Say Yes

IT stocks have underperformed the broader markets that are in the midst of a remarkable rally. The Nifty50 blue-chip index, which is up over 10 per cent in the last three months, is trading at a 15-month high. Compare that to the IT sub-index on the National Stock Exchange, which is down 3 per cent over the same period.

IT stocks were first hit by global developments, particularly Britain’s decision to exit the European Union in June. But the big dent in the IT sector has been on account of weak quarterly earnings. In particular, Infosys’ downward revision of its annual growth guidance hit sentiments in the IT sector, traders said.

Veteran market expert Ajay Bagga told NDTV Profit that domestic IT companies are likely to see further de-rating in the absence of any big earnings driver. Neither are they doing Big Data, analytics, cloud nor internet of things, he added.

“Drivers for growth in IT space are very different and Indian IT companies are laggards there. For instance, Amazon has more than $10 billion revenues coming from cloud space. Each of our big IT companies has not more than $1 billion from cloud,” he said.

“We have been waiting and watching what IT companies will do with new start-up economy, shared economy and aggregator economy. There is not much coming. Look at Google, even a laggard like Yahoo and the number of start-ups that they incubate, the numbers of start-ups they are buying every quarter. Our companies are just not there,” Mr Bagga added.

Domestic IT companies’ cash management also came in for criticism by Mr Bagga, who said that many IT firms are buying government bonds rather than returning money to shareholders.

“IT companies are outdated as far as technology goes, don’t do anything with cash flows nor are they doing any cutting edge work trying to be nimble like a small company,” he said.

Mr Bagga is not the only analyst critical of domestic IT companies. Trip Chowdhry, managing director of Global Equities Research, told NDTV Profit earlier this month that most Indian IT companies are slow to “reinvent” themselves in the fast-changing global landscape.

“The macro conditions are uncertain, the companies’ execution is questionable and their product offerings and the way the industry and technology shifts are happening, there’s clearly a lot of work that needs to be done, not only by Infosys but by every IT services company,” he said.

Earlier this week, Andrew Holland, CEO of Ambit Investment Advisors, told NDTV Profit thatthe days of high growth for IT companies are over.

“The Brexit decision will have an impact on hiring for IT companies across Europe and with US elections in November and all the noise around visas and so forth, it is not a great time to be in IT companies,” Mr Holland said.