Indian It Sector- is 2023 a year of revival or a same 2022 story
If you're a trader or investor or you are a passive participant in the equity market you very well know, that the value of your IT sector stocks and tech stock holdings have plummeted. Stocks in the technology sector have had their worst year since the 2008 financial crisis, finishing 2022 after a run of roughly four times the Nifty IT index's initial value. Nifty IT had two of its greatest years in a long time, in 2020 and 2021, with gains of 54.9% and 59.6%, respectively. The year 2022 has been a never-ending winter for tech equities due to worries about margins and growth outlook in a worsening global macro backdrop. One of the most successful industries in the country, information technology (IT), is currently facing challenges as a result of the ongoing economic uncertainty and recent worldwide crises.
The Nifty IT sector index, which includes major technology companies such TCS, Infosys and HCL Tech, amongst others are down since the beginning of 2022. The amount of personnel quitting Indian IT stocks are in huge numbers, all which in search of better prospects is another factor contributing to the high attrition rate. The majority of Indian information technology enterprises reported an employee turnover rate of more than twenty percent during the fourth and final quarter of the fiscal year 2021–2022. The IT industry is facing an increasing number of challenges, and as a result, IT stock prices are still underperforming.
Reasons for a slowdown in IT sector stocks
Companies like Snapdeal, PharmEasy, and Droom, among others, have been forced to postpone their ambitions to list on stock exchanges since their growth strategies have been hampered and hundreds of employees have been let go over the past several months. Even still, the fact that large investors refused to give them any more money led to a significant reduction in expenditures. According to data obtained from Tracxn Technologies and provided by business news daily, the country's startup companies have only raised a total of $27 billion so far in the last year in comparison to $42 billion in 2021. Actually, 2021 was the year that saw the flood of initial public offerings from tech businesses such as Zomato, Paytm, and Nykaa. IT sector stocks despite having a horrible listing were able to maintain themselves despite the difficult conditions of 2022 thanks to the money flow they received.
Tech giants like Apple, Google, and Microsoft who operate on a global scale are feeling the effects of a stronger currency since their foreign sales yield lower profits. In addition to this, rising interest rates and the greatest inflation both put a big impact on company profits and make it harder for them to make money. Consumers will pay more in interest payments on loans used to finance cars and other purchases as a result of the Federal Reserve's 75-basis-point rate hike in the last quarter. According to analysts, the rapid increase in interest rates has caused investors to question whether or not firms that did well in a low-interest-rate environment can maintain their success in a higher-rate climate. Investors are taking fewer chances on IT companies because of the swarm of questions and doubts around their future prospects, which is typically worse when interest rates are higher and financing is more expensive.
Relaxation in Covid norms
During the Covid times, many businesses let their employees work from home, and many educational institutions moved their courses online. This resulted in a boom in the IT industry and IT sector stocks. The employees and students made lavish purchases of computers and smart phones. Cloud storage and video conferencing software were among the business investments that allowed remote work for employees. People who were unable to leave their homes resorted to doing their shopping online, which drove local companies to invest more money in digital advertising in the hopes of attracting new customers. Now as the economy slowly shifts to its pre Covid era it is becoming increasingly difficult for technology companies to sustain that kind of growth. The global market for smart phones and computers is seeing a slowdown. Businesses that are experiencing financial difficulties are paying closer attention to the money they spend on cloud computing. Consumers have resumed their visits to retail establishments and have resumed spending money on vacations, concerts, and sporting activities. Let's take a look at Apple or Microsoft as an example. There has been an increase in sales on a quarterly basis, but when compared to the same period last year, there is a significant discrepancy. In the meantime, various credit rating agencies stated that technology budgets are related to the revenue growth of businesses, which indicates that demand would continue to slow down in the coming quarters and such global fears also affect the Indian It sector in 2023 and we see single-digit growth in First half of 2023.
Indian IT sector stocks - performing steadily in the long run
The information technology (IT) industry in India can be broken down into four primary subsectors: hardware, business process management, software products, engineering services, and information technology services. Out of four, IT Services is responsible for more than 51% of the overall income generated by the industry, and the BFSI (Banking, Financial Services, and Insurance) vertical is the most important one. Major pioneers in this segment are Infosys, TCS, Wipro, TechMahindra, and Mindtree. With a combined share of nearly 80%, the United Kingdom (UK) and the United States (US) are the most important consumer markets for the sector. On the other hand, there is a rising demand coming from the regions of APAC, Latin America, and Middle East Asia. To better serve customers in their individual local markets, Indian businesses have established more than a thousand global distribution centers in over eighty countries around the world. The cost of living is significantly lower in India. Because the cost of providing information technology services in India is a fraction (approximately 20%) of what it is in the United States, India has become a popular location for the sourcing of information technology. However, that is the main reason our IT industry faces setbacks due to the Global meltdown. The global market for sourcing services is estimated to be between 200 and 250 billion dollars, and India holds around 55 percent of the market share. SMAC, which stands for social media, mobility, analytics, and cloud computing, is driving the digital transformation of the industry's whole business model. Already, the proportion of the industry's overall export revenue that comes from the digital sector is approximately twenty percent. Large players with a wider range of capabilities are gaining ground as they transition from being simple maintenance providers to full-service players, offering infrastructure, system integration, and consulting services. This shift allows them to offer more comprehensive solutions to their customers. There are over 200 large and medium players who are responsible for approximately 80% of the total revenue.
We believe that our IT industry will follow the ups and downs in the global economy, but we believe that this will only be for the short term. In the long run, it is predicted to expand at a rate of around 8% in 2023 and nearly 10% in upcoming years on the scalability of nearly 300 billion in dollar terms. The slowdown that has been occurring in the IT industry over the past six months has been clearly visible. Many multinational corporations have suspended their hiring efforts, and some of them have even begun firing personnel. However, we believe companies will continue to grow and hire even while they confront challenges such as employee turnover, moonlighting, and the difficulty of getting staff to return to the workplace. In the near future, it is anticipated that at least 100000 people will be recruited.
How Indian IT stocks have performed recently
What to expect from the union budget 2023
India had the highest concentration of engineers per capita of any nation. But the country and industry, instead of going to where the talent is, were forcing talent to migrate to big cities where the jobs were, which put an enormous burden on infrastructure in those areas, drove up living costs, and was bad for the environment. Let’s take the example of the Karnataka government, with the Karnataka Digital Economy aim in mind, the state government has already taken progressive measures to expand its talent pool beyond major urban centers by establishing new technological clusters in Tier 2 and 3 cities, far from Bangalore. By 2030, the tech industry in India is projected to generate huge employment opportunities and over USD 12 billion. So from the Budget, tech giants expect the Finance minister to declare special zones and incentives for such areas.
Apart from this, the tech industry demands finance minister to reduce the long-term capital gains tax on domestic investors, allowing them to participate in local start-ups on an equal footing with their foreign counterparts. Also Reduce the MAT rate for qualifying startups from 15% to 9%, which will make it easier for them to meet their working capital requirements in the early years of their operations. Furthermore, permit start-up companies to carry forward and set off losses incurred within the first ten years after formation. This will allow start-up companies to better manage their operational efficiencies.
Best IT sector stocks to invest in 2023
TATA CONSULTANCY SERVICES
On January 9, Tata Consultancy Services (TCS) reported an increase in its consolidated net profit, which came in at Rs 10,883 cr for the quarter ended December 2022. This represents a 10.98 percent increase (Q3FY23). In the same time period last year, the business reported a profit of 9,806 cr. The consolidated revenue from operations came in at Rs 58,229 cr, which is an increase of 19.11 percent as compared to Rs 48,885 cr in the same quarter of the prior fiscal year. The revenue was far higher than anticipated, while the profit was lower than anticipated. The company also disclosed that it will be paying a dividend of Rs 75 per share, of which Rs 67 would be considered a special dividend. The date of the record for dividends is the 17th of January, and the date of payment is the 3rd of February in 2023. We expect TCS to reach Rs 3600 in short term, so we believe TCS is one of the best IT sector stock for 2023.
There was an increase of 31.1% year-over-year and 8.9% quarter-over-quarter in the company's total revenue of Rs 35,933 lakh recorded for Q2FY23. In Q2FY23, it generated Rs9,434 lakh in EBITDA, up 33.70% year-on-year and 5.4% quarter-on-quarter. Profit after tax for the period under review amounted to Rs5,941 lakh, up 33.70% year-on-year and 5.4% sequentially. Revenue for the first half of FY23 amounted to Rs68,929 lakh, an increase of 30.50% year over year. Earnings before interest and taxes and amortisation (EBITDA) was Rs18,209 lakh, up 33.60 percent year-on-year. At Rs11,575, lacs, PAT was up 44.4% year-over-year. We expect the share price has the potential to rise up to 1150 in the near term, so we believe HAPPIEST MINDS is among the best IT sector stock for 2023.
The National Company Law Tribunal (NCLT) has given its blessing to the proposed merger between L&T Infotech and Mindtree, and the two companies will begin operating as one entity as of November 14, 2022. The united business known as LTIMindtree is presently India's fifth-largest information technology services provider when measured by market valuation at the present time. The combined company, which will be known as LTIMindtree, will have a client base that contains more than 750 companies and almost 90,000 professionals. Proposed merger helps the entity to cross more than $6 bn for the upcoming year. Therefore we are expecting Rs 4600 could be the near-term target.