IT stocks saw heavy buying for the last 2 days on account of cheap valuations. Unless you are an ultra-short term investor (<1week), it is better to stay away from IT stocks.
Why should you not buy IT stocks?
1. IT companies still have not experienced the real impact of America recession.
2. Fall in IT stock prices was due fall in dollar value which will further fall after another rate cut in March.
3. They will experience the real impact of downfall in American economy in the coming quarters when American companies reduce their IT spending.
4. IT companies are not taking any concrete steps to face American economy recession. They should reduce the salaries by 20-30% and trim their employee strength.
5. If IT companies will not prepare for recession, they will face another 2000-01.
Which is the best IT stock?
Satyam computers. Satyam is in better position to face dollar appreciation and American economy crisis. My opinion: 2008-09 financial year will become worst performance year for IT companies. Medium and long term investors should stay away IT stocks.
Banking and Infrastructure companies will outperform other sectors in the coming quarters.
Sunday, February 3, 2008
Stock advice: stay away from IT stocks
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6 comments:
Satyam? Any reason?
As per my knowledge, Satyam is far behind many other IT companies with respect to cost and other measurements
Sir,
Satyam is in a better position to face dollar depreciation when compared to other IT majors. It has aggressive management and has posted strong results with good growth prospects. After Educomp solutions, rolta and Satyam have good prospects. But I recommend book profits with every rise.
I was just browsing thro your post. It looks very interesting. I am not sure what had led you to advise readers to stay away from IT stocks. Your observations are a normal crowd behaviour who just act based on the information they see ( typical case of "Believe what u see" ). These kind of investors just look around and extrapolate that to a big picture which may not be always good. It is just like you see a huge crowd outside your neighbourhood BigBazaar showroom and made a decision to purchase pantaloon shares :-)
Okey lets come to the point
1. IT companies still have not experienced the real impact of America recession.
Yes this can be absolutely true and it is not just for IT companies but for all sectors.
2. Fall in IT stock prices was due fall in dollar value which will further fall after another rate cut in March.
Your first argument may be true. But it did not have any impact on the revenue side or profitability side of most of the IT companies. They continue to grow at 25-30% YoY which is very good. Fall in dollar value against rupee last year was more to do with FII inflow with FII inflow moderating dollar can still appreciate against rupee (But i agree thats more a probability )
3. They will experience the real impact of downfall in American economy in the coming quarters when American companies reduce their IT spending.
Wrong..an initial impact can be there but going forward indian companies will benifit from this. Because it a consumer led economy like US companies can only reduce their IT spending but cannot reduce their IT initiatives. Infact it will increase more to remain competitive in the market. This will lead more work coming to Indian companies like Infosys/TCS/Wipro/Satyam and will put global IT majors who do not have enough presense in lowcost destination (like India) at a great disadvantage. Companies like Accenture,EDS,CSE will fall under this category. Remember just 6% of the total global IT spending work comes to India. So this portion can increase.
4. IT companies are not taking any concrete steps to face American economy recession. They should reduce the salaries by 20-30% and trim their employee strength.
Reduction in salaries is not the right solution to face a recession. Infact what i think is they will learn to increse their efficency and will continue to increase their employee strenght. Same as they have done in 2001.
5. If IT companies will not prepare for recession, they will face another 2000-01.
Absolutely true..And i think indian companies are better equiped for this :-)
The bottomline is after the recent battering it is the IT companies that look the most attractive and it is the right time to invest in hose companies.
Best comment in my blogging life. Let us wait and see whose prediction will become true. I hope your comment will become true for the sake of investors. But news from America are looking worse. Let us wait and see.
I have bought satyam at 442 and I have held it for 4 months and it has not crossed that till now. It always comes to 440 and then goes down. Should it just be sold or held?
RK
http://theindiastockmarket.blogspot.com/
IT companies will not face real effects of recession until next quarter. Book profits in Satyam in the pre-budget rally. If FM will announce any sops in the Budget to save these IT companies, Satyam will touch Rs 480.
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