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Time to re-evaluate Indian IT stocks?

Recent turmoil in Indian IT's largest market, USA, under the new Trump administration, as well as Brexit, has led to protectionism and a general anti-outsourcing sentiment. IT has meant that Indian IT has been hit hard.

twitter-logo Venkatesha Babu        Last Updated: March 7, 2017  | 15:43 IST
Time to re-evaluate Indian IT stocks?

US-based DeepDive/Everest Group IT services forecaster has forecast that the $108 billion in exports-a-year Indian IT sector is likely to grow at a mere 6.3%, according to a news report. It comes as no surprise.

The Indian IT industry apex body Nasscom for the first time in a quarter century had desisted from providing a growth forecast for 2018, citing uncertainty in regulatory changes and the overall macro economic outlook.

While for the past couple of years it has become increasingly clear that the old value and delivery model, used by Indian IT companies for the last decade-and-a-half, is under pressure, the dramatic reduction in growth rates means that the markets might have to re-evaluate their valuations.

Recent turmoil in Indian IT's largest market, USA, under the new Trump administration, as well as Brexit, has led to protectionism and a general anti-outsourcing sentiment. IT has meant that Indian IT has been hit hard.

The old 'lift and shift' model isn't working anymore. The suspension of even premium H1-B visa processing by the American administration means that Indian IT will have to radically alter its delivery model which might impact margins, profitability and thus valuations.

All the major IT stocks like TCS, Infosys, Wipro, HCL Tech, trade between 15-19 times their earnings. While Indian IT stocks have been under pressure in the recent past, if these numbers come true, then it might be time to revisit even the current valuations.

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