IT sector: Is this the right time to invest in sectoral funds now? 4 experts say this
Overall, outlook for information technology (IT) sector is not too positive, while the IT giants may perform well moving forward, assert investment advisors
Retail investors are often in the lookout for the stocks and sectors that are likely to perform well in the immediate future. When most small and mid-caps are believed to be overpriced, and broader market index of Nifty 50, too, is trading at a premium — there are a few sectors and stocks that are still a ‘good’ buy.
Notably, one techie Jishnu Mohan on Feb 7 posted on X platform that the whole recession situation made him “at the lowest confidence level in his career”.
Sadly, he lost his job at Forma just a day later. Some social media observers viewed his sacking an upshot of his X post. But he clarified that the two were totally unrelated and he was let go as part of the reorganisation and he was not the only one in his team who faced this fate.
In January 2024, several big tech companies and startups laid off over 30,000 employees with layoffs likely to get more intense this year, Hindustan Times reported.
Here we give a lowdown on the IT sector and explore if it carries the potential to deliver healthy returns in the immediate to medium term future.
Nifty IT index
Nifty IT index has given a return of 23 percent in the past one year but it is seen as overheated with a P/E ratio of 31.32 and P/B of 7.96.
Experts point out that IT sector is set to underperform and is not a good buy at the current valuations.
| Nifty IT Index | |
| Constituents | 10 |
| P/E | 31.32 |
| P/B | 7.96 |
| 1-year return | 23.19 % |
| Std deviation | 18.48 |
(Source: NSE as on Feb 23, 2024)
What experts say about the IT sector?
Most investment advisors argue that the information technology (IT) sector is not a good ‘buy’ since the projected growth is muted in Calendar Year 2024.
“Exports have declined and the next one year is not too great for the IT sector. There are not good industry prospects. I expect the sector to underperform. The growth of export services is projected to grow by 2-3 percent in dollar terms,” says Chokkalingham G, Founder of Equinomics Research.
However, he believes that the IT behemoths may still perform well while the smaller peers are currently overheated. “The large IT companies may grow because the small and mid-caps are overpriced,” he adds.
On the other hand, Vishal Dhawan, founder of Plan Ahead Wealth Advisors, argues that IT companies may give good returns moving forward.
“We believe that whilst the recession fears that had caused a severe correction in IT stocks have receded and the outlook for IT companies going forward is likely to be better as interest rates across the world stabilise,” he says.
Additionally, most experts advise against raising the allocation to one particular sector be it in IT or something else.
“Notwithstanding the fact that IT has not done too well in the recent past, we don’t recommend investors to become too niche in a sector or theme because it requires one to take a tactical call. In a diversified portfolio, one can have 10 percent allocation to sectoral funds to get the benefit of specific sectors. However, good quality IT companies can still deliver good returns,” says Sridharan Sundaram, Founder of Wealth Ladder Direct.
Amol Joshi, founder of Plan Rupee Investment Services also echoes the same sentiments.
“We don't recommend investing in thematic funds. Most lay investors don’t possess knowledge to ensure both the price points (at which they are bought as well as sold) are correct. You need to get the timing accurate. One can’t foresee all the factors relating to geography, technological, foreign currency fluctuation and global over the entire market cycle,” he says.
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First Published:26 Feb 2024, 10:09 AM IST
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