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Navigating the slowdown in the tech sector

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As the financial year in India comes to a close, markets look for clues. Technology services companies release data every quarter that allows market analysts to make projections. Quarterly results of most tech companies are announced in the first fortnight of the new quarter. Ahead of that, US-based Accenture puts out data that is perceived as a lead indicator of the performance of Indian tech companies. Accenture has a significant presence in India, and analysts for India’s services sector extrapolate the company’s guidance.

Earlier in the week, Accenture lowered estimates for revenue and profits for 2023. It has announced a cut of 2.5% in the global workforce. Accenture coined the term ‘compressed transformation’ that allows businesses to undertake end-to-end digital transformation across company departments at the same time. That is against the previous approach of a step-by-step change. The company was anticipating large contracts in the digital transformation space. However, the guidance suggests that the size of the potential business is smaller than previously thought.

Most Indian companies looking to generate revenue through software services will similarly impact their operations. TCS, the largest software services company, saw an unexpected event. Rajesh Gopinathan, the company’s CEO, stepped down to pursue other interests much before his term was supposed to end. The appointment of a company insider by the board suggests continuity of operations. In its December quarter earnings call, it flagged challenges in getting new business in the US and Europe. Infosys made a similar statement.

Despite such a scenario, there is optimism about Indian companies. The Nifty IT index has outperformed the Nifty 50 in 2023 so far. In a strategic review published by Nasscom, the industry body for software companies, India’s technology sector, led by software services exports, is likely to touch $245bn in 2023. The body expects the industry to scale $500bn in value by 2030.

That suggests you could look at IT services companies as potential wealth creators in the long term. However, most analysts believe that the profit growth in IT services would be in the high teens from the mid-twenties in the past. That is still not a bad thing. Share prices generally tend to follow the trend in profit growth. If you get around 15% return each year from your investment in the IT services sector, you are still creating wealth for yourself as you are doing way better than inflation.

The key here is to pick the right stocks. You can start by investing in a sector exchange-traded fund or a sectoral mutual fund. The future of digital India is in creating new companies that focus on the domestic consumer. Besides software services, you could also add digital India plays to your portfolio. Alphaniti has sectoral strategies mapped for you too. You can use Alphaniti’s ‘Digital India Alphamatter’ to move forward.


India’s tech industry set to reach $245 billion in FY23 | The Financial Express

Accenture | Quarterly Earnings 2023

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