IT companies shares get a lift post Nasscom guidance

India’s top five IT stocks were trading marginally higher on Friday after industry body Nasscom forecast 10-12 per cent growth in export revenue for the industry to $119-121 billion in FY17 on constant currency (CC) terms. Given the uncertainty surrounding the current demand environment, many experts felt the outlook was quite encouraging.
At 11.20 am, the BSE information technology index was up 0.32 per cent at 11,215. Among the top five domestic IT companies, Wipro rose 0.62 per cent to Rs 563.40. TCS was up 0.49 per cent at Rs 2,431.90 and Infosys advanced 0.15 per cent to Rs 1,181.50. Tech Mahindra and HCL Tech gained 0.30 per cent and 0.08 per cent, respectively.
The domestic IT industry reported an average exports revenue growth of 12.3 per cent on constant currency basis in FY16, compared with a forecast of 12-14 per cent growth.
“Given the volatility in the macro environment, this looks like a decent forecast. Moreover, on a higher base the growth will be towards this range, with the larger players gaining more market share from other marginal players. Moreover given the high ROEs of the companies and the respective valuations, we remain positive on the sector,” Angel Broking said in a note.
While we predict a low-teen growth for the industry, we believe specific levers in companies like Infosys, Tech Mahindra and HCL tech coupled with higher automation will lead to superior earnings growth (versus revenue) going forward, said Edelweiss Securities in a note.
“We have been highlighting time and again that digital technologies account for 12-14 per cent of industry revenue now, which are incrementally becoming mainstream. We believe this space will witness high investments, partnerships and acquisitions as players endeavour to enhance their skill sets and acquire expertise,” the brokerage said.
According to Nasscom, digital technologies are disrupting the IT landscape and creating new opportunities. It pointed out that clients are increasing their discretionary spend on customer experience, digital, analytics, ERP updates and improving overall efficiency across verticals.
Edelweiss Securities has maintained a buy rating on Infosys, Tech Mahindra and HCL Technologies.