Many IT stocks down up to 30%, be selective while picking them

NEW DELHI: Some of the IT stocks have fallen up to 29 per cent in the year so far with the BSE IT index, a gauge of IT stocks on the BSE, slipping 2.67 per cent in the same period. The index, though, has surged 5.11 per cent in the post-Budget rally that the broader market witnessed in March.

Sectoral analysts say the technological disruption in the space and a relative slowdown in discretionary spend in sectors such as BFSI and pharma will lead to these stocks taking a backseat for some time in the market.

“There are issues not only in the BFSI industry. Along with that you also have consolidation issues in the healthcare sector, which means IT spend in those sectors will also take a backseat at least for now,” said Harsha Upadhyaya, CIO of Equities, Kotak AMC.

Upadhyay’s Kotak Mutual Fund is underweight on the sector given the challenges it is facing. “In our overall portfolio stance, we have been underweight on the IT sector,” he said.

Mahesh Patil, Co-CIO, Birla Sunlife MF echoed Upadhyay’s view, saying, “Given all the backdrop, next year you might see slightly lower growth for the industry.”

What’s the way ahead?
Patil of Birla Sunlife MF sees the industry’s top line and volume growth moderating in the near future. “We have seen some kind of, not exactly a slowdown, but top line and the volume growth expectations, which were there for next year, but have probably got moderated a bit,”he said.

At last count, IT stocks were underowned by 17 out of top 20 mutual funds in the country, a report by brokerage firm Motilal Oswal Securities showed.

Investment mantra
On how to invest in this space, Upadhyay said investors “need to be little more stock-specific within the sector.”

Dipen Sheth of HDFC Securities sees the space undergoing a transformational shift in the coming few years. “Within IT, there is no catch-all filter to find where the honey is and you will have to look at a specific company. You will have to do the slicing and dicing and figure out which ones are better placed over the next few years,” he said.

Patil is betting on companies that are able to deal with the transformation well. He said, “I think companies that are able to do the transition better would be able to grow better than the overall industry average.”