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    IT sector: Is it out of the doldrums?

    Synopsis

    It was feared that the economic slowdown in Europe and the US would affect the IT sector, but that has not happened. Contrarily, the majority of businesses have reported strong growth, even in Europe. While the situation is volatile, companies are confident of navigating the same successfully.

    IT Sector: Is it out of the doldrums?iStock
    In 2022, the IT industry underperformed significantly. This was the same industry that was being snatched up by investors everywhere. It began performing poorly in 2022 due to higher attrition rate, and as a result, employee costs increased significantly which the companies could not pass on to the customer.

    The market was still figuring out how the slowdown in the US and Europe would affect the IT budget. There were expectations that IT growth would be insignificant, both in terms of topline and bottomline. However, the numbers that were released for the September quarter paints a slightly better picture. Every IT company post result commentary suggested that attrition rate has either peaked or about to peak.

    Infosys, Mindtree, Wipro, and Tata Elxsi are a few companies that have seen a decrease in their attrition rates over June 2022 quarter. Others have noted a slight increase but are hopeful that it will begin to decline, which allays one worry. IT companies have also mentioned that they have been able to renegotiate their contracts with current and potential customers to achieve better realization. In that regard, these businesses are able to transfer some of the cost to the clients. Companies like TCS, Infosys, HCL Tech, and LTI have all seen margins increasing in the September quarter over the June quarter.

    It was feared that the economic slowdown in Europe and the US would affect the IT sector, but that has not happened. Contrarily, the majority of businesses have reported strong growth, even in Europe. While the situation is volatile, companies are confident of navigating the same successfully.

    Despite underperforming in 2022, their financial performance has shown resilience, resulting in these companies' valuations becoming attractive. In an era where investors are worried about higher debt, IT companies have zero debt on their books. In the higher interest-rate era, investors will look for companies that have zero or negligible debt. That will see investors shopping for IT companies.

    The NASDAQ, which Indian IT companies used to imitate, has also started to perform well simultaneously. Thus, the worry is over, and it would not surprise us if the IT industry ends up being one of the best-performing industries over the next 12 months.

    (Author is Sunil Damania, Chief Investment Officer, MarketsMojo.)



    (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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