Our Funds
Related Links
Tools View All
Knowledge Hub Explore
Investment Frameworks
Insights View All
Obsessed with helping you invest better. Trusted by 50L+ investors*
Services
If you are a first-time investor or new to DSP, Get started here
New to IFAXpress? Sign up
Uh-oh! No results found. We're on it!
Listening ...
This will help us to improve and provide you a better experience.
DSP
Jun 21, 2023 10 mins
The Indian Information Technology (IT) sector showcases robust growth driven by skilled workforce, competitive costs, and supportive government policies. Indian IT firms have gained global prominence with superior financial metrics and attractive valuations compared to global peers. Despite recent underperformance, historical trends indicate potential for future growth, buoyed by sector dynamics and cyclical patterns. Retail investors can access this opportunity through direct stock investments, albeit requiring diligent research. Alternatively, IT-focused mutual funds and Exchange Traded Funds (ETFs) offer diversified exposure and professional management, catering to both long-term investors and those seeking trading flexibility in the sector.
In the ever-evolving landscape of investment opportunities, one sector stands out as a beacon of potential and prosperity - Information Technology (IT) in India. As the industry witnesses a surge in technological advancements and innovation, the Indian IT market offers a fertile ground for investors seeking attractive avenues. The stability of earnings and consistent growth of IT companies further enhance its allure. Investors can tap into the abundant opportunities presented by this sector and unlock a realm of limitless potential.
Over the past three decades, the IT sector in India has experienced remarkable growth, transitioning from humble beginnings in 1992 to a significant contributor to the economy. This transformation reflects the rapid development and capability of the Indian IT industry.
One of the key drivers behind this growth was India's focus on becoming a global outsourcing hub for IT services. The availability of a skilled English-speaking workforce, competitive labour costs, and improvements in telecommunication infrastructure played a vital role in attracting multinational companies to establish their operations in India. This led to the rapid expansion of IT-enabled services, including software development, Business Process Outsourcing (BPO), and Knowledge Process Outsourcing (KPOs).
Additionally, the Indian government implemented policies to support the IT sector's growth, The government is further aiming for technology and digital economy to make 20% of India’s GDP by 2025-26.<a href="https://economictimes.indiatimes.com/tech/technology/targeting-technology-be-20-25-of-indian-gdp-by-2025-26-mos-it-rajeev-chandrasekhar/articleshow/101103058.cms?from=mdr">Mr Rajeev Chandrasekhar,</a>````MoS ITeconomictimes.indiatimes.com/tech/technology/targeting-technology-be-20-25-of-indian-gdp-by-2025-26-mos-it-rajeev-chandrasekhar/articleshow/101103058.cmsrecently remarked that the Indian innovation economy has grown from the 4-5% in 2014 to 10% today and they aim to take it higher.
<a href="https://economictimes.indiatimes.com/tech/technology/targeting-technology-be-20-25-of-indian-gdp-by-2025-26-mos-it-rajeev-chandrasekhar/articleshow/101103058.cms?from=mdr">Mr Rajeev Chandrasekhar,</a>````MoS IT
This progress was facilitated by initiatives such as offering tax incentives, simplifying regulations, and establishing Special Economic Zones dedicated to IT and IT-enabled services. These measures created a conducive environment for domestic and international IT companies by fostering innovation, job creation, and foreign direct investment (FDI) inflows.
The opening up of the IT sector in India hoisted the industry into the big league. As seen from the chart above, the market share of Indian IT companies in the global arena has witnessed substantial growth, increasing from a little over 2% in 2006 to over 13% in 2022. This growth showcases the expanding influence and competitiveness of Indian IT companies in the global market. They have been successful in capturing a significant portion of the global IT services market by offering cost-effective services, leveraging a skilled workforce, developing domain expertise, focusing on innovation, adopting a global delivery model, and forming collaborative partnerships.
As seen from the chart above, Indian IT export growth is higher than World IT spending growth over past 2 decades. This also points towards the growing dominance of Indian IT companies in World IT spending.
A comparison of the fundamental metrics of evaluation of the Indian IT sector with the global IT industry highlights the Indian IT sector's advantage for growth and investment opportunities. The NIFTY IT index, representing Indian IT companies, demonstrates higher Return on Equity (ROE%) and Return on Assets (ROA%) compared to the NASDAQ 100 index that represents IT companies in the US.
As seen from the chart above, the NIFTY IT index shows an ROE% of 25.4% versus 19.2% for the NASDAQ 100, indicating better returns for investors. Additionally, the NIFTY IT index achieves an ROA% of 16.2% surpassing the 7.7% of the NASDAQ 100, demonstrating higher profitability from their asset utilization by Indian IT companies.
Regarding valuations, the NIFTY IT index presents more attractive indicators compared to the NASDAQ 100. The NIFTY IT index boasts a lower price-to-earnings (P/E) ratio of 25.2 vs P/E ratio of 31.4 by NASDAQ 100, suggesting that Indian IT companies are relatively cheaper in relation NASDAQ 100. Furthermore, the NIFTY IT index exhibits a lower price-to-book (P/B) ratio of 6.4 v/s P/E ratio of 7.1 of NASDAQ 100, indicating that Indian IT companies are valued more reasonably based on their book value compared to NASDAQ 100.
These financial indicators and valuations demonstrate the Indian IT sector's superior financial strength and investment potential compared to the global IT industry. With higher profitability, better asset utilization, and more favorable valuations, the Indian IT sector presents a compelling proposition for investors seeking investment opportunities in the technology sector.
Recent underperformance of the IT sector
The graphs above show that the sector is below its peak valuation levels from the past, while the following infographic indicates lower recent performance as compared to the other sectors in the last 1 year.
Historical data shows that underperformance is followed by overperformance, a trend observed across various industries and financial markets.
So, the IT sector may be poised for growth with the factors contributing to this growth including market dynamics, investor sentiment, adjustments and restructuring within underperforming sectors, and the cyclical nature of markets and the economy. It may just be the right time for investors to place their bets on the Indian IT industry.
Below are some ways in which a retail investor can take part in the opportunities presented by the IT sector:
Investing in direct stocks: Carefully analyze and assess IT company stocks, peers, industry trends, and the market. Purchase stocks of selected IT companies to directly benefit from their success. However, this approach comes with high risks as returns are tied to specific companies and it’s difficult to identify the good ones. Thorough research and analysis are essential to identify strong companies with growth potential. You must also monitor and rebalance the portfolio as needed. All in all- a tough ask for a regular investor.
IT-focused Mutual Funds: Investing in IT-focused mutual funds ensures a broader exposure to multiple IT companies within a single product. This reduces the concentration risk associated with investing in individual stocks. There is also the advantage of a professional fund manager who navigates the choppy waters on your behalf. Exchange Traded Funds: ETFs are types of mutual funds that provide the best of both worlds - direct stocks as well as mutual funds. ETFs are designed to mirror and track the performance of specific indices or the sector. Think of this option as the ability to directly purchase ‘a unit of the Indian IT index’. They offer diversification like mutual funds, as they hold a basket of securities, but they can be bought and sold throughout the trading day at market prices, like direct stocks. This flexibility allows investors (as well as those who might want to trade) to additionally gain from (almost) constant liquidity of the product
All content on this blog is the intellectual property of DSPAMC. The user of this site may download materials, data etc. displayed on the site for non-commercial or personal use only. Usage of or reference to the content of this page requires proper credit and citation, including linking back to the original post. Unauthorized copying or reproducing content without attribution may result in legal action. The user undertakes to comply and be bound by all applicable laws and statutory requirements in India.
*In this material DSP Asset Managers Pvt. Ltd. (the AMC) has used information that is publicly available, including information developed in-house. Information gathered and used in this material is believed to be from reliable sources. The AMC however does not warrant the accuracy, reasonableness and / or completeness of any information. The above data/ statistics are given only for illustration purpose. The recipient(s) before acting on any information herein should make his/ their own investigation and seek appropriate professional advice. This is a generic update; it shall not constitute any offer to sell or solicitation of an offer to buy units of any of the Schemes of the DSP Mutual Fund. The data/ statistics are given to explain general market trends in the securities market and should not be construed as any research report/ recommendation. We have included statements/ opinions/ recommendations in this document which contain words or phrases such as “will”, “expect”, “should”, “believe” and similar expressions or variations of such expressions that are “forward looking statements”. Actual results may differ materially from those suggested by the forward looking statements due to risks or uncertainties associated with our expectations with respect to, but not limited to, exposure to market risks, general economic and political conditions in India and other countries globally, which have an impact on our services and/ or investments, the monetary and interest policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices etc.
Your comment has been received. We will review it and post it shortly after checking it.
Sort by
Fri Jan 21 2022 18:10:00 Asia/Calcutta
Jan 21, 2022 7 mins
Tue Apr 18 2023 13:10:00 Asia/Calcutta
Apr 18, 2023 13 mins
Tue Jul 18 2023 15:00:00 Asia/Calcutta
Jul 18, 2023 14 mins
Sign up for our newsletters.
Investor Relations Officer, DSP Asset Managers Private Limited, Natraj, Office Premises No.302,3rd Floor, M V Road Junction. W. E. Highway, Andheri(East), Mumbai-400069, Tel.:022-67178000.
Mutual fund investments are subject to market risks, read all scheme related documents carefully. © DSPAM 2024.
Any information regarding securities offerings, or references to securities offerings, that are contained on these pages do not constitute or form part of any offer of securities for sale or the solicitation of an offer to purchase securities in the United States or in any other jurisdiction where such offer may be restricted. The information in the coming pages is not intended for, and is not to be made available to, persons in the United States (being persons resident in the US, corporations, partnerships or other entities created or organized in or under the laws of the US or any person falling within the definition of the term "US Person" under the US Securities Act of 1933, as amended), wherever located. Any information regarding securities offerings, or references to securities offerings, that are contained on these pages do not constitute or form part of any offer of securities for sale or the solicitation of an offer to purchase securities in the United States or in any other jurisdiction where such offer may be restricted. In no event shall DSP Mutual Fund and / or its affiliates or any of their directors, officers and employees be liable for any special direct, indirect, special, incidental or consequential damages arising out of the use of information / opinion herein. The site, texts, images, designs, pictures, sounds, photographs, animation, and videos together with their layout and more generally all the items contained on this website are the sole property of DSP Asset Managers Pvt. Ltd. This site and all of the elements on this site are protected by Indian Law and by International copyright agreements concerning intellectual property. The content of this website must not be copied, modified, reproduced, distributed, transferred, edited or made accessible to third parties for any purposes whatsoever without obtaining prior permission from the owners of this website. *No. of unique investors who had invested with DSP at any time. ^Includes domestic AUM only, as on Dec 31, 2023 @ copyright DSPAM All rights reserved.
By submitting, I agree to receive a call from DSPAM for assistance.
We have received your query and will get back to you shortly.
Gain access to our latest articles on the world of investments.
Monthly update on all the information related to our funds.
Monthly insights on the economy and markets.
To help you our services, we would be grateful if yo could tell us why:
Mention reason
Describe reason
Update your preferences
The email address [email protected] has been removed from our mailing list. you will no longer hear from us.