The Nifty IT index is down by 25% , respectively, for the year, reflecting the concern that a US and global recession could significantly slow the business of Indian IT and digital transformation services. These concerns are significantly overblown and over rated, as stated by Mr Vikas Gupta of Omniscience Capital.
To understand Indian IT companies, the most important point to note is that more than 50% of their revenue is driven by digital transformation and related services, mostly driven by cloud computing.
Indian IT companies are partners for the top three Cloud platform providers representing a 65% market share, viz., Amazon (AWS), Microsoft (Azure) and Alphabet (Google Cloud).
These three largest Cloud players reported large growth rates in their latest quarter. Amazon reported nearly $20 billion in quarterly revenue for AWS, growing 33%. Microsoft reported more than $25 billion in quarterly revenue for Microsoft Cloud, growing 33%. Alphabet reported nearly $6 billion in quarterly revenue from Google Cloud, expanding36%.
Alphabet CEO Sundar Pichai says: “On Cloud, we continue to see strong momentum, substantial market opportunity here and still feels like early stages of this transformation.”
Google Cloud CEO Thomas Kurian quotes an International Data Corporation (IDC) report showing a doubling of public cloud services spending from $500 billion in 2022 to $1 trillion in 2026, a Compound Annual Growth Rate (CAGR) of nearly 19%.
Accenture, another leading Cloud services provider, grew its Cloud business by 48% for the year. It also expects to grow by nearly double digits (8%-11%) on a base of $62 billion in revenue. For comparison, the two largest Indian IT services companies are TCS, with revenue of nearly $23 billion, and Infosys, with revenue of nearly $17 billion. Both are expected to continue growing at nearly 12-15% growth rates over the next several years. Keep in mind that as the proportion of the digital and cloud business in total revenue increases the overall growth rate is expected to accelerate.
With Indian IT companies available at earning yields ranging from 3.5% to 5.5% and growth rates in double digits over the long term, the expected total returns look quite attractive and significantly higher than the market.
We assume that this is the most appropriate time to take exposure in IT Sector Mutual Fund Scheme through SIP or STP . Given below is the list of some leading Technology Funds and the discount they are offering in terms of their NAV in last 1 Year :
Disclaimer : Mutual Fund investments are subject to market risks, read all scheme related documents carefully. The NAVs of the schemes may go up or down depending upon the factors and forces affecting the securities market including the fluctuations in the interest rates. The past performance of the mutual funds is not necessarily indicative of future performance of the schemes. The Mutual Fund is not guaranteeing or assuring any dividend under any of the schemes and the same is subject to the availability and adequacy of distributable surplus. Investors are requested to review the prospectus carefully and obtain expert professional advice with regard to specific legal, tax and financial implications of the investment/participation in the scheme