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“The challenge is that if an offshore IT engineer generates $35,000–40,000 in revenue annually, the SAS company is generating $80,000–100,000 per software engineer. So, their ability to pay is just as high. There is issue which we have been raising since last one and half year. I think the business structure and business model of what IT services companies pay and hence the revenue they generate is going to come under pressure,” said Mishra.
Another reason for their bearishness on IT stocks is the costly valuations.
The seasoned market expert said that as these two adjustments happen, the growth rate will come down. He said the margin which used to be 5-6% and went up to 12-15%, is now at 10-12%, and will have to fall to 6-8%. “You will see a fall in the PE multiples. That’s why we weigh less than IT services.”
So far in 2022
Lost 20 percent, 22 percent, 10 percent and 36 percent of its value.
However, fundamentally, Mishra says IT services are a great sector when there is global macro uncertainty. “They have great balance sheets, great cash flow, supreme quality management and great corporate governance. Everything is very attractive. The problem is this is a very expensive sector.”
Mishra has started adding healthcare stocks to his portfolio as it has become cheaper. “It has been underperforming for several years now. The challenge is that it is a very stock specific sector but it has a very defensive feature and so we have become overweight. Also, that is on airline stocks. is bullish because they have pricing power.
(Disclaimer: Recommendations, suggestions, views and opinions given by experts are their own. They do not represent the views of Economic Time.s)
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