Have you ever wonder why Indian IT companies are aggressively moving to the engineering R&D space? We have seen a humongous rally in stocks like #LTI #KPIT #HappiestMinds #TataElxsi Does the surge in the stocks are legit or it’s time to take a contrarian view? 🧵
Nifty IT Index returns in CAGR $CNXIT:

1Yr: 74.8%
3Yr: 26.2%
5Yr: 22.3%
Midcaps outperformed the large-cap, and indices:
The question is whether the rise in the stocks is a catch-up rally to larger peers or something has fundamentally changed in the industry? Let’s take a step back, and try to understand what’s driving the surge in the stock prices in the first place.
COVID-19 has fundamentally accelerated the pace of technological advancement. More things have changed in the last 12 months that ideally would have taken a decade!

newswise.com/coronavirus/ho…
-The biggest beneficial to this is digital vertical of the IT industry.
-Some cos also include their IT engineering services business into this vertical.
-Software product development used to be a niche segment but now it has become the fastest-growing vertical of the industry!
-Among the segment, the engineering R&D vertical is doing extremely well, and recently we have seen aggressive M&A in this segment.
-The number of large deals has also increased dramatically.
-There were just 3 large deals in FY20 which jumped to 10 in FY21.
-Naturally, only those players will succeed in the long run who has strong capabilities in the product engineering space with a strong relationship with larger clients.
-However, different cos will be at different points in their life cycle, and of course, different things will be going on for them.
-In the IT sector, size is extremely important for the long term as cos can do cross-selling, and mine their larger clients over a period of time.
-This is a basic strategy that is followed by most of the mid-cap IT companies in general.
-However, few traits make these companies special.
-In the last few years, companies have brought in CEOs and top-level management from larger players who bring client relationships and proven strategies around scaling up a smaller firm. For example 👇
Ashok Soota, founder & executive chairman (#HappiestMinds) founded #Mindtree
Sanjay Jalona, CEO (#LTI) is from #Infosys
Ajay Bhutoria, CEO (#Zensar) is from #Cognizant
Sandeep Kalra, CEO (#PersistentSystems) is from #HCLTech
Karthik Natarajan, COO (#Cyient) is from #TechMahindra
-Now coming to valuation and financials, the PAT growth over the last year has been higher than the revenue growth, thanks to a steep decline in travel and visa-related expenditure. However, rising salaries are concerned on the margins:

livemint.com/technology/tec…
-Q4 results are outstanding.
-Most of the companies delivered excellent results across business units, geographies, and specialized verticals / COE.
-Deal wins in digital are also very good.
-Generally, digital deals are smaller in size, however, they are extremely high in volume so even smaller cos can also bid.
-And the market is sufficient enough for everybody as of now.
-In fact, larger players are letting go of some of the contracts due to a lack of manpower 👇
Cognizant had to let go of business because it couldn't hire talent:

moneycontrol.com/news/business/…
-Indian IT cos will continue to do well in the FY22 just by looking at the management guidance.
-Cos will report further acceleration in topline growth aided by strong deal wins.
-The decent earnings ensured better prospects of stock performance.
-Midcap IT cos will continue the momentum in FY22 and report sequential growth over a small base, however, EBIT margins may be impacted due to higher salaries.
-In short, mid-size cos will continue to do well, but one needs to take a stock-specific approach.

• • •

Missing some Tweet in this thread? You can try to force a refresh
 

Keep Current with Rushin Shah 🐘

Rushin Shah 🐘 Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

PDF

Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

Did Thread Reader help you today?

Support us! We are indie developers!


This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!

Follow Us on Twitter!

:(