Is it a good time to bet on software stocks?

If the higher payscale for H1B visa holders gets approved, IT companies will face margin pressure 

Published 3 years ago on Jan 23, 2017 Read

Pankaj Pandey, head-research, ICICI Securities

The outlook remains weak for IT stocks and we could see further de-rating. Growth challenges persist and unless there is a major shift in the IT sector’s earnings trajectory, IT stocks will remain range-bound.

While valuations have seen a sharp correction, there needs to be a significant improvement in the demand environment for multiples to improve. If the proposed change of paying higher salaries for H1B visa holders gets approved, IT companies will face margin pressure. While, they could resort to employing local manpower in the US who may come in at lower salaries, IT companies could struggle to find such a large talent pool there. Most IT firms have reduced their guidance due to macro uncertainties. Going ahead, we would wait to see how IT companies cope with the changing business environment.

Sadanand Shetty, VP and senior fund manager, Taurus AMC

We would be looking for buying opportunities in the IT space given the sharp correction. For instance, when the rupee is facing volatility and yields shoot up, most sectors find themselves in trouble as their balance-sheets get impacted. Cash-rich stocks, which are under-owned by investors, tend to outperform the market during such times. We would be looking to use this opportunity to add some IT stocks as they are presently trading at relatively cheap valuations. We will be watchful of how the sector adapts to the changes and how much of Trump’s rhetoric gets implemented. We will also be keeping close tabs on the commentary put out by managements of IT companies. Those companies that adapt quickly to the changing environment will generate good returns and those are the ones to watch out for.


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