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Information Technology: Sector Outlook
We remain bullish on the Indian IT sector for FY12. A capex-led US recovery and strength in
the Banking and Financial services vertical underpin our bullish thesis on the sector. We
expect Tier 1 players to deliver another year of solid top-line performance and are building in
27% US$ revenue growth.
Our positive view on the sector ties in with our regional strategy view of favouring Tech stocks
that are leveraged to the US recovery cycle. Recent US economic data points and quarterly
results from leading tech firms support our positive investment view.
US capex spend at historical lows. Our US economics team expects a capital
expenditure “catch-up” to provide a solid tailwind for US GDP growth in 2012. Strong US
corporate revenues and earnings, increasingly available low-cost capital, depreciated
capital bases and low capex/sales ratios will likely lead to increased spends on IT (Figure
below). US firms also have increasingly large cash balances on their balance sheets – for
example, US non-financial firms’ money market mutual fund holdings more doubled from
US$300bn in 1Q03 to more than US$700bn in 4Q08.
ISM Manufacturing Index is at its highest since May. The ISM Manufacturing Index, a
purchasing managers’ survey, is one of the key measures of business conditions in the US
economy. The index is based on responses from individuals within the economy who are
actually purchasing goods; thus it provides an extremely insightful view into where the
economy is heading. The index is designed so that measures above 50 indicate economic
expansion, while those below 50 signal contraction. The index has so far supported the
view on US recovery and continues to underscore our bullish thesis on the sector.
Oracle and Accenture results takeaways. Accenture and Oracle declared strong
quarterly results in December. Accenture delivered double-digit YoY growth for the first
time since 2008. Oracle reported 23% YoY growth in the new software license sales, which
bodes well for discretionary spend – supporting our Outperform rating on HCLT.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Information Technology: Sector Outlook
We remain bullish on the Indian IT sector for FY12. A capex-led US recovery and strength in
the Banking and Financial services vertical underpin our bullish thesis on the sector. We
expect Tier 1 players to deliver another year of solid top-line performance and are building in
27% US$ revenue growth.
Our positive view on the sector ties in with our regional strategy view of favouring Tech stocks
that are leveraged to the US recovery cycle. Recent US economic data points and quarterly
results from leading tech firms support our positive investment view.
US capex spend at historical lows. Our US economics team expects a capital
expenditure “catch-up” to provide a solid tailwind for US GDP growth in 2012. Strong US
corporate revenues and earnings, increasingly available low-cost capital, depreciated
capital bases and low capex/sales ratios will likely lead to increased spends on IT (Figure
below). US firms also have increasingly large cash balances on their balance sheets – for
example, US non-financial firms’ money market mutual fund holdings more doubled from
US$300bn in 1Q03 to more than US$700bn in 4Q08.
ISM Manufacturing Index is at its highest since May. The ISM Manufacturing Index, a
purchasing managers’ survey, is one of the key measures of business conditions in the US
economy. The index is based on responses from individuals within the economy who are
actually purchasing goods; thus it provides an extremely insightful view into where the
economy is heading. The index is designed so that measures above 50 indicate economic
expansion, while those below 50 signal contraction. The index has so far supported the
view on US recovery and continues to underscore our bullish thesis on the sector.
Oracle and Accenture results takeaways. Accenture and Oracle declared strong
quarterly results in December. Accenture delivered double-digit YoY growth for the first
time since 2008. Oracle reported 23% YoY growth in the new software license sales, which
bodes well for discretionary spend – supporting our Outperform rating on HCLT.
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