We have been mentioning that we are bullish on IT sector since the start of October. Though the global IT sector outlook looks weak as many companies are laying off their employees, but the Indian IT sector is strong.
Indian economy is growing at a strong pace as seen by recent quarterly results, even though there is a global slowdown. The role of IT in this growth is very crucial. Because of technology, the modern business world is
now far less constrained by geographic reach, financial backing or language barriers. Organizations have more opportunities than ever to diversify their workforce, reach new customers and develop new products.
The impact of technology goes far beyond the core tech industry, though. While there are many opportunities directly related to digital product development or service delivery, there are countless more opportunities opening up around the world as technology influences every business and every industry vertical. IT sector is a long term growth story.
The IT space contributes a little over 9% to national GDP, making it one of India’s biggest economic sectors.
Supporting this, the government has indicated strong budgetary focus on the IT sector, issuing statements recently around the digital economy, health ecosystem and e-passports.
Indian IT sector is expected to witness good growth
According to the NASSCOM Enterprise CXO Survey 2022, 60% CXOs indicate a 6% higher tech spend in 2022 over 2021. R&D investments are expected to grow between 10% and 20% over last year. Most respondents also expect to maintain or grow their hiring in line with last year. There is robust demand from BFSI, utilities, travel, and hospitality.
IT Spending in India
End-user enterprises are emerging as technology job creators – about 30% of respondents intend to increase their technology team by over 15%.
The top stocks have also come down sharply from their 2021 December peak, making them an attractive buy.
IT sector segments
FY2023 growth opportunities: Cloud and analytics, Infrastructure and managed services, consulting; Platform BPM, data management & RPA; ER&D will see deeper penetration of engineering cloud. The software product segment will see greater offtake of productivity software, cybersecurity solutions.
This week down trend may be more dominant. Nifty may witness buying at lower levels and may also see selling at higher levels. Trend is not one way, not clear, not good for positional trades in Nifty.
IT stocks may be under selling pressure this week, this will be a good opportunity to enter. Avoid small companies.
Does stock valuation techniques work?
Valuation techniques are based on assumptions like growth rate and cost of capital. Growth rate can change drastically, and even the cost of capital. So the valuation may not be correct. You will find that different analysts come out with different valuations.
Even bigger problem is that there are many factors that affect a stock price and which are not covered by any valuation method, like change in management, change in external environment (government laws, incentives, geopolitical issues, recession etc), company fraud, emerging of a big competitor etc. All these can make a valuation completely useless.
Learning valuation is good for those who seek a job in this field, but it is absolute waste of time for real investors.
Benefits of trend following – If you are able to identify the correct trend and for example you buy in an uptrend, then even if the stock falls, it will rise again. For best benefits, one should buy on dips in an uptrend, and sell on rise in a downtrend. This is the most basic rule of trading, and most effective.
But it works only if you know the correct trend, and the approximate bottom of a dip or top of a rise.