Info-tech

Government spending can provide a big boost

K Venkatasubramanian BL Research Bureau | Updated on November 25, 2017

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Indian IT companies have been fairly immune to the budgetary exercise of the government, as most of them now pay full taxes of 26-28 per cent. The domestic IT segment which was hit over the past few years with slow decision making in awarding contracts and issues with delays in the payment to vendors may now get a fresh thrust with a new regime in place.

IT stocks have rallied from 10-95 per cent in the last 15 months with the likes of HCL Technologies, Tech Mahindra and MindTree being the best outperformers delivering over 90 per cent returns on the back of strong financial performance as well as relatively low valuations. TCS too has run up, though, because of rich valuations, the stock’s run was not as spectacular. Infosys and Wipro have not kept pace since they are yet to reach industry level growth rates.

While the frontline IT companies derive 3-5 of their revenues from the domestic business, CMC derives a third of its revenues from its Indian clientele, comprising several government agencies.

If the budget indicates technology spends for its many departments, many players may now stand to gain.

When e-governance initiatives are given a facelift, players such as CMC and Wipro Infotech, which are prominent players in this space and have won multi-year deals from several state agencies would get greater traction.

Infosys too is a significant player in the e-governance space as it now maintains the portal of the Ministry of Corporate Affairs handling electronic company filings, having taken it over from TCS. With the new Companies Law, which calls for greater disclosures, in place, Infosys would look to gain from greater volumes in this space.

MindTree, one of the companies that have won contracts from the UIDAI agency, would be hoping that the Aadhaar card scheme is not affected in case of any review of the project.

A recent report from research firm Gartner indicates that the Central and State Governments together would spend $6.9 billion on IT products and services in 2014.

Published on June 15, 2014

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