IT sector seeing disruption, stocks underperforming: Should you go contra?

STOCK MARKET - Another quarter has gone by and technology majors have again failed to live up to the expectations – a couple of them have even lowered guidance for seasonally weak December and March quarters. A mere 4% rise in the Nifty IT index year-to-date also reflects the challenges and disruptions the domestic information technology (IT) firms have been facing for the past few quarters. While valuations on the counter have come off at reasonable levels and the recent dividend/buybacks are seen supporting the stock prices, analysts believe a stock-specific approach across the sector makes better sense than contra bets at present.

The Nifty IT index’s 4% increase so far this year looks pale before benchmark Nifty50’s 26% jump. Among individual stocks, Wipro has rallied 23%, TCS 10% and HCL Tech 1%, while Infosys has shed over 6% during the same period.

In the September quarter, only HCL Tech retained a higher-than-industry-average guidance for FY18, of 10.5-12.5% growth in constant currency (CC) terms. Infosys trimmed its FY18 CC revenue growth guidance to 5.5-6.5%, while Wipro reported a muted guidance of 0-2% QoQ revenue growth for the December quarter. TCS does not forecast future earnings.

Rakesh Tarway, head of research at Reliance Securities, noted growth would remain muted for the next two years, and advised looking at individual stocks with strong cash flows.

“The IT sector is currently undergoing a phase of disruption in the business model owing to trends like cloud computing, artificial intelligence, digitisation and automation. We believe these trends could continue to impact business growth for the next 1-2 years,” he said.

Tech Mahindra gets HC notice for illegal layoffs amid HR audio clip fiasco

Tech Mahindra is in the news again, this time over notices issued by the Hyderabad High Court to the state of Telangana, the state's labour department, and the information technology (IT) major directing them to respond to the alleged unlawful retrenchments of software engineers employed by the firm. The development was reported by the Times of India on Tuesday.

The legal notice comes in the back drop of the recent controversy at the IT major over a taped conversation between its human resource  (HR) management staff and an employee who was handed the pink slip.

According to the national daily, Justice M S Ramachandra Rao gave the parties three weeks to file their replies to the allegations raised in a writ petition filed by four retrenched Tech Mahindra employees.

Tech Mahindra's management faces allegations of large-scale and illegal retrenchment of its employees in Hyderabad, the report said, citing the submission made by the counsel for the retrenched employees before the court.

The petitioners, the report added, had approached the labour commissioner under whose jurisdiction Tech Mahindra falls. Subsequently, the department set in motion a conciliation process. However, the company went ahead and terminated the petitioners' employment even as the process was underway.

While Tech Mahindra is not the only IT major handing out pink slips in large numbers, a recently leaked audio clip has left it with a weak hand. 

Get rid of 3-month notice period: Techies ask govt to ease quitting process

Latest News - The government should make it easier for IT professionals, who are expecting single-digit hikes in the coming financial year, to exit their jobs, an online petition signed by over 28,000 professionals has demanded, reported The Economic Times on Thursday.  

Their complaint? The three-month non-negotiable notice period that most IT firms hold their employees to. According to the report, the petition said, "It is unrealistic for anyone to plan that far ahead for their future actions and resign in advance not knowing state of the issue in next three months." The petition has been addressed to the Union Ministry of Labour & Employment.

Speaking to the financial daily, an IT professional, who did not want to be named, said that no company would be willing to wait for three months while their new employee serves out his or her period at their old firm. Further, the report said that Tata Consultancy Services, Infosys, Tech Mahindra, HCL Technologies, Capgemini, Accenture and IBM had a three-month notice period in place.

Growing pains

Indian companies are likely to provide single digit increments to their employees in 2017, across industries, an Aon Hewitt survey said recently. “The survey projects a drop in pay increases to an average of 9.5 per cent across industries. While it’s a marginal decrease from the 2016 (10.5 per cent) spends, it reflects maturity that India Inc has displayed amid global and Indian economic and political events. This includes recent changes in the US government and the much-talked demonetisation,” the report said. Aon Hewitt, the global talent, retirement and health business of Aon plc, conducted its 21st annual survey after speaking to more than 1,000 companies. (Read more) 

'Made in India' iPhones: Apple to seek incentives at Jan 25 govt meeting

Latets Business News - A team of the US-based iPhone maker Apple will meet a group of senior officials from ministries, including IT and finance, on January 25 to discuss its demands for setting up a manufacturing unit in the country.

Officials from departments of commerce, industrial policy and promotion (DIPP), revenue, environment and forest, electronics and information technology (DeITY) will take part in the deliberations.

In a communication to the government, the Cupertino-based technology major has asked for various incentives including the tax incentives and long-term duty exemptions, to enter the manufacturing sector in India.

However, the sources said the technology major should set up the manufacturing unit in India without seeking additional support.

As many as 42 companies are making mobile phones in India, including Chinese firm Huawei and Xiaomi, and no firm has approached the government for any additional incentives.

Currently, the government provides support by way of benefits under the Modified Special Incentive Package Scheme (MSIPS) to boost electronic manufacturing.(Read More)