IT Sector to Touch New Heights in 2017 on Demonetization

Dynamic Equities | June 6, 2017, midnight

At present, the IT sector is going through a phase of chaos and confusion. The reason behind the bewilderment is the statement of Donald Trump in which he said that he will stop encouraging outsourcing from other countries after he joins office on 17th January, 2017 as the new US President.

On the other hand, Indian Prime Minister Narendra Modi announced demonetization to eradicate black money and make Indian citizens switch to online mode of transaction. This has given a boost to the IT sector.      

On the threshold of 2017, the Indian IT sector in 2017 finds itself at a crossroad. On the plus side of things is the client base that the sector has built up over the years, its centrality in running the back-end of the many financial institutions, the capability of its excellent software engineers and the benefit of a large pool of engineering graduates.

On the other hand, the IT sector finds itself unable to propel itself to the next level as far as technology is concerned. The effect of which can render these service providers utterly futile to their clients in just a few months.

Also on the downside for the IT sector is the rising tide of ‘protectionism’ in developed markets and the stance adopted by some of them, notably the UK, in putting in place stricter curbs on hiring foreign nationals by making the visa procedures more stringent.

Protectionism reached a fever pitch in the recent US elections, where the Republican candidate Donald Trump won on the promise that he repeatedly made to white and blue collar US workers that he would get their lost jobs back to the United States.

According to former Infosys CFO V Balakrishnan, all of these factors shall result in the hike of short-term uncertainty around the visa regime. Infosys CEO Vishal Sikka has often pointed out the need to move towards a visa-independent scenario in the times to come.

For now, however, the Indian IT sector is to a large extent dependent on onsite presence.

Technical Analysis:

From August 2011, the IT Index has rallied 156 per cent from 5035 to 12900, which is its all time high (made in February 2015). Recently, the index corrected 28 per cent and made a low of 9295, which is the biggest correction ever. Currently, IT Index is trading at 10170.

Demonetization has proved to be a game changer for the Indian IT Sector. It has made the IT Index surge and it might further breakout of its all time high of 12900. Since August 2011, IT sector has been performing really well till February 2015. In 2017 too, it shall continue to touch novel heights with demonetization backing its flight. 

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