IT Stocks Valuation

[stk_chk]

In the recent rally, IT Stocks , irrespective of Large mid or small caps have invariably being under-performers. Companies like HCL Tech , TCS have done remarkably well for Q1'08 but their stock prices have taken a beating due to the Rupee factor. Do they present a good value at the current prices for long-term appreciation(2-3 year horizon)

Also if they are bound for rally, would it be relatively safe investments with large-caps or mid-caps??

[Alchemist]

I think they are definitely good long term investments.

TCS, Infosys and Wipro will continue to do well in the future too.

In the medium term, the dollar may weaken further and put the margins of these companies under pressure. Companies have increased their billing rates by around 3% recently, but this may not be enough to compensate fully for the dollar decline.

Also, a US slowdown will decrease business for the IT sector for a year or two. However, the slowdown will also force companies to further cut costs and outsource more in the long term.

Avoid the smaller IT companies - unless, you are sure that they have a strong business model.

In times of an economic slowdown, smaller companies will really find the going hard.

I feel, IT companies will continue to underperform for a year at least. It may be possible to get these stocks 10% cheaper from these levels too in the next few weeks.

Long term investors can accumulate these stocks at every dip, but should expect only moderate returns for the next 12-18 months.

[stk_chk]

Thanks for your reply , Alchemist


These stocks keep going down and down as though they are in a bottomless pit. At every fall, i feel tempted to buy some of the big ones. Just keeping my options open now after what you have said