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Jaypee adjusts estimates for IT sector, outlook neutral

Jaypee | 02 Sep, 2011  | Follow Author | Add to my Favourites 
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Key Points:

- Demand and growth outlook: After S&P downgrade of the US, and European regions still struggling, discretionary IT spending is expected to decline, though RTB (Run-the-Business/ maintenance) kind of projects are expected to keep the spending alive. Also, deal pipeline for Q4CY11 remains robust, indicating strong demand (for time at least)

- Supply side story: With sufficient industry churn happening through FY11, we see attrition mitigating, and supply side issues waning. At junior level, supply remains abundant. However, demand exceeds supply in high skill areas, both on functional as well as technical side, like ERP, cloud technologies, analytics, mobility etc.

- Will we see margins contraction?:  We expect wage hike to continue and outpace pricing, leading to gross margin contraction. Price decline of computer systems shall provide some respite. The companies will try to achieve cost efficiencies by optimizing their SG&A, so operating margin may not fall (for big companies at least) as much.

- Will it be a repeat of 2008?
The scenario is much better as compared to 2008 (FY09), when IT budgets were delayed and BFSI totally curtailed its IT spending. However this time, regulatory spending in BFSI is on rise and corporate profits are surging. Moreover, Indian IT vendors are handling much larger projects, which aren’t expected to dry out soon.

- Can things become even worse for stocks?
We do not see revenues of Indian IT vendors plummeting, though if things continue the way they are doing, FY13 growth for sure will be lower than growth in FY12. ERP, Cloud, Mobility, Analytics, Infra, Consulting & Testing remain areas of interest.

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About Jaypee

Jaypee Capital Services Ltd is a well diversified financial services group having businesses in stocks and currency. Their services include equities, derivatives, e-broking, portfolio management, currency, IPOs and depository services. Jaypee, founded in 1995, was formed with one basic principle in mind to create a professional workforce of youngsters to provide fair and transparent prices and services to the clients and investing public at large.


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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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