Tech stocks: Tech stocks rally up to 18% in week, is worst over for IT pack?

IT stocks have been under pressure in recent weeks, with shares eroding up to two-thirds of their value from their 52-week highs on muted financial performance and pressure on margins.

Amid the recession buzz, investors are wondering if the worst is over for IT stocks.

“In the near term, for a quarter or two, we may not see much disappointment on the earnings front but for the next year, the uncertainty on earnings is definitely very high,” says Abhishek Bhandari, senior research analyst, Nomura.

Despite a strong order book and performance by Indian IT players, he remains cautious on the sector, citing uncertainty over revenues in the coming fiscal years.

In the last one week

It increased its IT package by 18 percent, followed by and 10-12 percent each.

Medium and small IT counters,,,,,, and rose as much as 8 percent on the week.

Like Bluechip IT counters

It increased by 4 percent while gaining 7 percent. TCS, and also confirmed with a modest profit.

Conversely, other analysts believe some technology businesses have very attractive valuations, with good cash flow, management bandwidth and strength, share buybacks and strong dividend payouts.

With digitalization, cloud migration or blockchain, all costs are going into IT. These are strategic costs and are not rational in nature, said Nitin Raheja, Executive Director, Head – Decision Equity, Julius Baer Wealth Advisors.

“I really don’t see how the IT costs can be incurred,” observes Raheja. Yes, of course some new age dotcom businesses will find funding difficult. Price in this underperforming sector.

Other market analysts suggest that investors should be wary of large IT companies with large order books and strong customer relationships amid fears of a backlog.

Mid-cap names have very high growth rates and some of them are very good and very good companies, but it’s safer to play in this area and stick with the big names, said Jonathan Shisles, Deputy CIO, Westminster Asset Management.

“Obviously the whole group is benefiting from the weakness of the Indian rupee and that is a positive side,” he added. “On the negative side, the global recession will affect their business.”

(Disclaimer: The advice, suggestions, opinions and views given by the experts are their own. These do not represent the views of The Economic Times)