I would say, bang on! I used to think sometimes that why IT sector/companies are not highly valued like say FMCG even though their earnings have been pretty much predictable over long term and variables impacting them are not that great, neither any capex needs, although employee cost and investment in bench is there…
I used to think that major reason is possibility of big volatility in earnings, while that reason is still there but major reason for lack of confidence of investors, specially retail & even employees in general on IT companies is because of your bang on statement above…the management gets panicky & layoff starts…a company/sector which does not have strength to support employees during bad times is certainly not worthy of long term premium valuations…
One of the reason I became a believer in Indian IT is because I saw them supporting their employees in one of the worst times of the century…the Pandemic…
Now, I am confused about the reason for that support…was it because of the DNA of these companies/sector or because they could see huge growth & margin improvements ahead (less travel, WFH, more demand etc.)…
If the reason is second one, then I would rethink my thesis of these companies being “Mangnificient”. I would rather then call them ordinary with their better days around making them seem “Magnificient”…Thanks for this perspective and I am still thinking…
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