IT sector companies Performance

 In 1995, the profitability contributions from IT was 1% of the total corporate profits. Today it has increased to 24%

-16% of the market cap today is from IT

Indian IT potential is severely underrated. With themes like digital, AI, blockchain, cloud etc. picking up and nicely playing out, all the Indian IT companies are in a sweet spot and value unlocking on the cards.

With favourable levers like work from home, work from anywhere, cost optimization, margin improvements, robust order book, strong deals in the pipeline, I feel the next wave of IT revolution might be just around the corner.

CLSA has raised the targets for HCL Tech to1000 in coming days.It trades at a discount compared to it's peers in large cap IT space. Most of the brokerage houses have recommended Infosys as the value pick for samvat 2077.

TCS has declared buyback @ Rs 3000 per equity share. Madcap IT names like L&T infotech, L&T technologies, Tata Elexis, Persistent Systems, too look very promising and can give handsome returns in coming days.

The advantage with IT space is, most of these are marquee names with clean balance sheets, literally zero debt cash rich companies, excellent corporate governance standards, high pedigree management teams, led by visionary leadership, regularly rewarding the shareholders generously with dividends/buybacks/bonuses etc.

Since last Diwali Infosys has gained 71%, HCL Tech gained 50% and TCS gained 28% in terms of share price. The relevance and dominance of IT has only increased during the COVID pandemic. The margins have expanded, demand has come back. Looks like IT is getting into purple patch both in terms of growth and valuation re-rating for next couple of years. For business growth there is greater clarity as whole world is rushing towards adoption of digital in every sphere of life. And Indian IT companies are extremely well placed and better positioned to seize this advantage.

When you compare IT sector with consumption sector FMCG names, they look similar in terms of ROCE profile, free cash flow generating profile, dividend payout ratio etc. The advantage lies in lower P/E multiples for IT compared to FMCG names like HUL, Nestle, Britannia etc.

One sector where you could invest, forget, have peaceful sleep and laugh all the way to the banks in next 2~3 years.