With S&P Bombay Stock Exchange (BSE) Sensex returning merely 2.55% returns since the beginning of the year in addition to weaker performance of other indices, S&P BSE Information Technology (IT) index has emerged as the best performing index. Analysts say stronger dollar, increased digital spending, strong results and reduced external factors around immigration have resulted in the rally of IT stocks.
“There were worries on H1B Visa earlier. Many IT companies have worked on this by recruiting locals before Trump got elected as the President of America. This has helped IT companies in India to reduce costs,” explained AK Prabhakar, research head at IDBI Capital.
S&P BSE IT has given 20.14% returns since the beginning of the year, followed by BSE FMCG and BSE Finance that gave 4.94% and 1.25% returns respectively. On the other hand, rest other indices have taken a beating in CY18. S&P BSE Telecom index has been the worst performing index YTD which fell by 27.7%, followed by Oil and Gas, Realty, Utilities, Basic Materials that gave returns in a negative tune of 14.4 %, 14.1%, 12.5% and 12.1% respectively.
Other indices include Healthcare, Industrials, Metal, Consumer Discretionary and Goods and Services, Energy and Capital Goods. These indices have seen a steeper decline in range of 2.7 % to 27.8 % since the beginning of the year.
“We expect FY19 to only see a modest acceleration in revenue growth over FY18 with the top-5 IT companies within our coverage likely to post dollar revenue growth of 8% in FY19 as against an expected organic growth of 6.5% in FY18,” said Kuldeep Kaul and Adish Jain, analysts at ICICI Securities in a report. For Q4FY18 analysts expected IT companies to post revenues within the range of 1.8-2.5% QoQ with cross currency to be the tail wind.
Additionally, Nasscom has guided for IT services exports growth of 7-9% in constant currency for FY2019 as against 7% likely to be achieved in FY2018.
“This guidance implies absolute revenue addition of $9-11 billion, implying higher absolute revenue addition when compared to FY2018,” said Kotak Securities in a report. “The market has now started to believe that IT sector is now on a cyclical upturn. The slower growth rates in the last couple of years are not likely to extend further. Additionally, the weakening rupee is also helping,” said Ravi Menon, analyst at Elara Capital. However, AK Prabhakar further pointed out that IT companies are currently trading at expensive valuation. “For a long term investor it does not matter but one who is looking at one year, then the valuation is expensive,” added Prabhakar.
On Friday, BSE IT index ended the session 20.4 points higher at 13,549.52 points. Since the beginning of the year, IT stocks have gained up to 76%, with Firstsource Solutions, NIIT Technologies, Mindtree and Infinite Computer Solutions being one of the top gainers in the sector.