Business Today

Indian IT stocks overvalued?

The quarterly numbers are in from the top three software services exporters TCS, Infosys and Wipro along with some of the mid-sized players like MindTree. Cognizant will declare its numbers on 5 August. While TCS and Wipro barely met topline expectations, Infosys and MindTree disappointed. All of them also did not meet margin expectations of the market.

twitter-logo Venkatesha Babu        Last Updated: July 20, 2016  | 11:28 IST

Venkatesha Babu, Deputy Editor, Business Today
The quarterly numbers are in from the top three software services exporters TCS, Infosys and Wipro along with some of the mid-sized players like MindTree. Cognizant will declare its numbers on 5 August. While TCS and Wipro barely met topline expectations, Infosys and MindTree disappointed. All of them also did not meet margin expectations of the market.

After a decade and a half of spectacular growth, Indian IT services companies are struggling to adapt to a changing technology landscape. Their earlier model of offering low-cost offshoring services is under increasing pressure due to shift to the cloud, automation of services and other structural shifts taking place in the global IT landscape. Indian IT companies seem to be unabe to capture fully the spending in digital segements what they are losing in traditional IT services. Global competitors like Accenture, IBM and Capgemini today have their own low-cost offshore delivery capabilities. The juice in a model, which worked for nearly two decades, seems to have been squeezed completely.
 
Indian IT companies have recognised this and are trying to adapt to changed market conditions, albeit each player at a different pace. In the meanwhile, growth projections made by these players for the whole year are barely in double digits. Wipro might even end up growing in single digit this year. Which leads to the question of valuations.

Inspite of a 9 per cent fall on the day when it announced results, Infosys still trades at 17 times earnings. Most of the top players trade anywhere between 15 and 19 times their earnings. Compared to the guidance they have provided, valuations of most IT stocks look on the higher side. In a new normal of slow growth, Indian IT stocks look overvalued.

 

Youtube
  • Print

  • COMMENT
BT-Story-Page-B.gif
A    A   A
close