The last one year has been a mixed bag for the IT stocks. While the top three names have been significant under-performers against the Nifty or Sensex, names such as HCL Tech, Tech Mahindra and mid-tier players such as Mindtree, Persistent Systems and Cyient have been top notch performers. Investors preferring cyclical sectors as opposed to defensives such as IT, the relatively higher valuation of these stocks and the fact that the sector had a good run till early 2014 meant that there were no blockbuster rallies. While the large-cap IT companies trade at 18-23 times trailing earnings, mid-tier players too trade at 16-22 times, making them fairly expensive.

The immediate concerns for the sector are a weak economic scenario in Europe and volatile currency movement. One important positive for the sector is that India-specific deals have grown across board for most IT players in recent quarters.

Earnings steady

For almost all the players, revenues and earnings have met or exceeded expectations. Of course, the fall of the euro against the dollar and the rupee has meant that realisations hurt in the December quarter to the extent of 200-250 basis points. Key segments such as manufacturing, retail and to a lesser extent banking have been chugging along quite well.

Among the IT pack, Infosys, CMC, Wipro, Mindtree and Tech Mahindra have strong domestic presence. While domestic spend on IT from the private sector has bounced back, government agencies are slowly starting to increase spends. As almost all IT companies pay income taxes at a rate of 26-28 per cent, any change in the MAT rate is not likely affect these companies.

Most IT stocks may not witness any re-rating in the immediate future, and in this regard, the budget may not be major trigger.

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