Excited to buy into India’s IT stocks and the best indian IT stocks to buy?

Justifications to analyze the best Indian IT stocks to buy

Indian IT sector business model is exceptionally good. What are the best Indian IT stocks to buy and why? They earn revenue in US dollars and expenses are mostly in Indian Rupees. Also, it is an asset light business. Mostly IT cos are debt free and dividend paying. Due to all these factors Indian IT industry remained a darling of investors for decades. But it seems that the glam of Indian IT sector is missing for last few months. Let us discuss this story today and let us find out which are the best indian IT stocks to buy now.

Almost all of Indian IT stocks has been in a downtrend for the last few months.
Nifty IT has been clearly on a downtrend from February 2024.

What are the factors behind the downfall of IT stocks.

1.Slow down in the US market: The major source of revenue for Indian IT companies is US market. As the popular saying goes, if US market sneezes, Indian IT gets cold. Although companies are improving their revenue from other markets including middle east and Europe, US market is the primary market for Indian IT firms. As the Federal Reserve Board of US has kept the interest rates high in the market in their fight against inflation, there is a slow down in the IT spending of US clients. This is a major concern for the Indian IT.

2.Valuation: As the EPS of the stock improves, markets tend to be over optimistic and gives over valuation to the stocks, regardless of whether they deserves it or not. When the world passed through the pandemic, EPS of the companies improved drastically and this resulted in giving over-optimistic valuation to the IT stocks. After the Covid19, the world returned normalcy and the earnings of IT companies started to fall down. This resulted in EPS contraction along with a valuation de-rating.

Due to the above two reasons the downward journey started in Jan 2022 which bottomed out by July 2022. As IT sector was recovering slowly the US market slowdown came. Many of these stocks are still trading well above their median PE ratios.

What’s in store for Indian IT:

As we are moving to a more and more digital world, the future holds a lot of opportunities for IT companies.

 

1. 1. It will be too early to say that IT jobs will be taken over by AI. I believe that AI is going to create a lot more opportunities for Indian IT sector.

1. 1. Ultimately US interest rates will come down and help Indian IT companies to go back to their glory.

Our strategy can be adding IT stocks in small quantities starting from FY25. Once the US markets starts recovery, Indian IT stocks are going to generate huge wealth for investors.