Advantage India: Domestic tech stocks are outperforming their US peers by most in 12 years

Indian IT companies have benefited from global demand for automation and digital services

India’s technology stock gauge is poised to outperform its US peer by the most in 12 years as demand for automation and easy money at home boosts shares, according to a Bloomberg report. The S&P BSE IT index has gained more than 48% this year, trouncing the Nasdaq 100’s performance by about 31 percentage points and heading for the biggest annual beat since 2009. 

Asia’s biggest software exporter Tata Consultancy Services Ltd. and outsourcing giant Infosys Ltd. make up more than half of the weighting of BSE IT index. These companies have benefited from global demand for automation and digital services. A selloff in China’s tech shares are also aiding flows into the nation’s $3.5 trillion stock market.

Source: Bloomberg
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Source: Bloomberg

TCS will kickstart the earnings season for India Inc when it announces September quarter earnings later today. 

According to a note from domestic brokerage Anand Rathi, 17 of the 18 IT companies it covers are likely to record higher revenue in Q2 FY22 vs. Q1 FY22. “We expect sequential growth for most of the companies we cover to hover around 5-7% in Q2 FY22. Most companies to register strong y/y and TTM (trailing 12 months) growth, but y/y growth to modestly decelerate," the brokerage said. 

“We expect the industry TTM revenue growth to record the third successive acceleration in Q2 FY22. Since this is the last quarter with the low-base- related benefit, the trajectory from now will be critical to watch," Anand Rathi said.

The depreciation of the rupee is also a tailwind for Indian IT. “Despite healthy external current and capital account, RBI is averting appreciation of rupee through large interventions," the brokerage said. 

“High wages, reduced protectionism and weaker rupee aiding Indian IT exports to US – market that accounts for 60% revenue. Share of listed companies in India’s IT exports jumped from 25% two decades back to 60%, captives, ITES accounts the rest. The current hybrid work environment has reduced the share of on-shore and increased competitiveness of Indian IT," it added.


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