IT sector analysis

July 29, 2012

Though I.T sector is a topic where one wants to be taciturn because of the increasing global volatility there are many opportunities to make fortunes out of it. It has grown to 50 billion $ in 2010 and curve is indicating an upward direction for the long term.

Few reasons associated to it is that after 2008 and 2011 global crisis prices have corrected a lot and the risk is becoming lower. Indian I.T sector mainly depends on its long term maintenance contract and software it makes for its clients. It is a misconception that earnings get hammered if rupee becomes stronger against the Dollar since most of it is hedged. Crisis in the west and Europe is a cause of concern. Other key drivers for Indian IT is its BPO business which has similar skeletal business model.

IT sector comes under services sector of GDP and most of the employees are freshers out of the college. Why I am telling is that it does not employ unskilled labour unlike manufacturing sector where unrest is more likely and other reason is that it mostly located in suburbs or in the main city where land acquisition is simpler compared to taluk areas.

Key indicators that IT company is doing well or not is the headcount (number of people working) and the average revenue per head. The clients see this as the first criteria while giving this contract to the firm. In case of hardware the depreciation amount indicates the how long will it to upgrade new systems . Sales in form of free distribution of laptops by government is a major long term revenue driver since there will be up gradation in software by the masses in next few years. These things are generally not focused on QOQ basis and thus these points to show how to analyse qualitatively.

Editor: Pakshaal S.Shah

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