The shares of Indian IT firms have been rallying in the previous due to the anticipation of blockbuster earnings. During this uncertain time, when organizations are getting it tough to sustain their revenues, the IT sector has impressed investors with its double-digit development.
Pranjal Kamra, CEO of Finology, says, “A big shift is happening in this industry where the inflow of demand from the clients due to the pandemic is firming up the earnings of companies like TCS, HCL, Infosys, Wipro, and MindTree.”
The pandemic has accelerated the adoption of digital and cloud technologies. Experts think this trend is most likely to continue more than the next 5 years. Chintan Haria, Head- Product Development & Strategy at ICICI Prudential AMC, says, “Growth rate is likely to be better than pre-covid growth levels. Also, global IT budgets of corporates are increasing which is a leading indicator of growth for Indian IT companies.”
Technological innovations are taking spot at a break-neck speed, a theme that specialists say is going to continue more than the coming years as organizations look to resolve the troubles we face. Viraj Nanda, CEO, Globalise, says, “Investing in technology companies helps investors participate in the growth that comes as a result of the innovation, which has been driving the recent popularity in these stocks.”
Should one be investing in the sector?
Diversification is an essential component of constructing a robust portfolio, and specialists say it is essential that investors diversify across sectors and geographies. Digital technologies adoption is becoming pervasive in nearly each sector. Industry specialists say earning visibility of the IT sector more than the next two to 3 years is going to get even stronger.
Kamra, of Finology, says, “Earlier the major cost used to be the attrition rate of employees where IT companies had to keep increasing their employee’s salary month after month but such is not the case anymore. Tech stocks are a good investment option for both growth and income investors who can choose from several mature and established companies.”
Disruptive technologies such as cloud computing and information analytics are supplying new windows of possibilities for Indian organizations. As a outcome, specialists say the IT sector is most likely to be on a development path from a close to to medium term viewpoint as technologies spends would continue to acquire share for each corporate.
Kamra, additional adds, “It is a rapidly developing sector and a lot of growth opportunity lies even in these mature companies. IT stocks frequently spot higher premiums than other market category and it is due to above-average growth rates that these companies post. An investor should certainly look for the long-term contracts that these companies hold along with the average revenue earned per employee by the company.”
Who ought to invest in the sector?
Investors who are participating in the Indian equity markets, either via single stocks or mutual funds, specialists say ought to feel about allocating a portion of their portfolio towards worldwide markets to develop a effectively-diversified portfolio. As component of this, one could take into account taking exposure to technologies stocks via a assortment of routes out there, based on one’s threat appetite.
Nanda, of Globalise, adds “Investors can buy individual stocks of companies like Tesla, Apple, Netflix, Google, etc. Ownership can be in the form of full or fractional shares, enabling investors to own a share in the profits of these tech giants.”
Additionally, Nanda says, “for those investors who want a broader exposure to a diversified set of technology companies, the best route is through exchange-traded funds (ETFs). Here, funds like the Invesco QQQ Trust ETF (Ticker: QQQ) track the Nasdaq 100 index and includes the largest 100 U.S and international companies listed on the NASDAQ exchange. Several thematic ETFs provide exposure to specific themes in the technology space – for example, the First Trust Cloud Computing ETF (SKYY) invests in companies involved in the cloud computing industry.”
Experts say investors with a lengthy-term view of the industry ought to be cognizant of the market’s cyclical nature and focus on points that are inside their handle. Haria, of ICICI Prudential AMC, says “Investors who have an investment horizon of at least three years should invest in the sector. This is because digital as a theme is likely to fuel growth in the near term which is a positive for the sector.”
Note that timing the industry is incredibly tough – specialists say lengthy-term achievement has been accomplished by investors who stick to a technique regularly and invest with a lengthy-term view of the industry. Therefore, investors ought to have a positive view of the innovation taking spot, and these who want to develop exposure to these organizations to participate in their development ought to continue performing so in a systematic manner.