IT companies will have minus to plus 5% of last year's earnings: Sandip Sabharwal

economictimes.indiatimes.com:

«So I would think that a similar phenomenon could repeat going forward because outlook for most of these companies has not improved. It has actually deteriorated,» says Sandip Sabharwal, asksandipsabharwal.com.Surprised by the market's reaction to TCS or HCL Technology's numbers? The move that you saw on IT? This happens every time because people are inherently bullish on technology stocks especially the retail investor community as well as a large swath of fund managers. So what we have been seeing over the last two-three quarters is that every time results come out, there tends to be a worst is over kind of buying which happens in this sector.

And then as the quarter plays on, and people realise that the worst is actually not over, then these stocks give up gains. So I would think that a similar phenomenon could repeat going forward because outlook for most of these companies has not improved. It has actually deteriorated.

And for this year, most of the large IT companies will have earnings which will be minus 5% to plus 5% of last year's earnings. And valuations are around 20 to 25 times for most of them. So I think it is tough to make a case to buy right now.

So it will be tough for this move to get built into any sustainable big up move. So they might just hold on, because finally they are cash generating companies with no debt. So to that extent, the risk in terms of overall risk in these stocks tends to be low.