#CNXIT History of IT Sector in India: A data-based perspective
In last 1.5 years, we witnessed a heavy price correction in IT sector. This is evident from CNXIT index movement which is 32% down in last 1.5 years (we kept cautioning repeatedly then)
Now, sector is also facing headwinds. Typically, this is how market behaves. Market is always ahead of reality. It tops when valuations highlight major froth, smart money slowly exits n new entrants think they know it all, are scapegoats. Companies r lowering their guidance.
Within a year, we have come from healthy double digit growth to low to mid single digit growth projection. Question is - Is it something new or there is something to learn from history?
History is an interesting subject and price is the first guide. Lets us look at history
When we look at IT index history, we realize that current correlation is not 1st one. The last major correction happened in 2014-16 when CNXIT was 25% down for 2 years. This was the time when current 50x stocks were available at 15x and still there was lot of pessimism.
Do you know why CNXIT went through such correction? Let me give you some hints. Below is the table which provides global IT spending data for last 19 years. Look what happened to global IT spending during 2014-16 period on 1- and 3-year CAGR. It went through its worst -2 to -5%
Also, what is noteworthy about it is that 2021 was a year of record high global IT spending. The last such spending happened just before 2008 recession. Now, again, we are talking about recession. Call it co-incidence or whatever but data always throws important stuff.
Let me throw one more interesting data stuff. I tried to find correlation between global IT spending YoY growth rate and few more indicators and found 91% strong correlation between global IT spending YoY growth and this indicator.
This is just one of the interesting insights among many we are covering in our IT sector super session where we already had 1 session and there are 2-3 more sessions planned to cover this sector in utmost detail. Want to know more, join us here: learn.scientificinvesting.in/learn/IT
Current price performance:
Last 5 year numbers say it all - a mere 5.5% annualized returns failing to beat FD.
Ask guys 5 years back, how was HDFC treated in market then
Given stock has not given good returns, it is important to understand if stock performed badly earnings wise in last 5 years. Nothing changed in last 5, 3, 1 year.
Is the future going to be different and is stock going to underperform big time on growth?
HDFC Bank (keeping merger aside) has added employes and branches at 22-24% growth rate in FY23 vs FY22.
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💡 Some unique aspects of software business. The development to sales cycle of software business explained (we discussed this at length during our IT supersession).
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