No Moat Growth IT Services Sector

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There are lots of IT companies, everyone seems to grow. employees themselves jump from one IT to another for a pay raise. The talent moves, the customers move and I am sure the shareholders also move.

Important Question,

  1. how do you select a stock here? how much percentage have you given allocation? What is the reason for selecting the particular stocks? interested in response only from people who plan to hold this sector for next 10 to 15 years.

Longterm issues with this sector,

  • Dollar might lose value, all central banks are buying gold. less interest is seen with dollar. So service cannot just focus on the dollar. they have to move to all currencies. the cushion that we had on IT services revenue when rupees lost value will no longer be the way it used to be.
  • India is diversifying, CNG, Electric, petrol, etc. what use to keep the dollar more valuable is decreasing. expectation is to decrease. so more we become self-sufficient. cost advantage that these IT companies enjoy loose over time. self sufficient india not in IT companies favor
  • Growing AI intelligence, IT services has to be more adaptive to changes. much more than before. It cannot be a kodak or nokia. It have to adapt quicker than before.

Share you thought process on this sector why and what you have? how much allocation have you given for it.

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Nifty 50 : ~12.7% allocation (6 stocks)
Nifty 100: ~10.92% allocation (7 stocks)
Nifty 500: ~ 9.66% allocation (33 stocks)

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A good topic for discussion. Our IT industry is majorly doing the QC and Bug detection job and custom development of applications for clients. Post COVID the industry started doing digitisation which became a big theme. There is not a single purely products company worth mention which can compete globally. Not a single product which sells $ 1 Bn worth of product licenses ( i can stand corrected if someone has data). From the early 90’s we have been sub contractors of companies like MS, SAP, Adobe etc and have not evolved beyond that. TCS and Infosys have a core banking product but its too small in terms of their overall revenue.

That beside AI can take away majority of the QC and Debugging jobs or the T&M revenue as it is called in the Industry.

How do the companies grow, get more manpower on board and get them to work on these T&M jobs, bill them per hour and increase the revenue.

SAP consulting was seen as a niche earlier but now every IT company is doing it. There is nothing new, in my view, which makes me believe that IT companies can grow significantly from this level. Yes, keep adding manpower and grow.

Happy to hear counter views.

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I mostly agree with the issues highlighted, therefore, I think the type of companies we should look for need to change. Over the long term, ER&D(firms like LTTS & KPIT )and IT products firms(like intellect) looks interesting.

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