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Indian IT services stocks set for turnaround in 2018: Morgan Stanley

Though the sector faces risks from automation and a slower pace of market share gains from global vendors, a cyclical rally could be in the offing

Press Trust of India  |  New Delhi 

IT, IT Sector

Indian IT services stocks are set for a turnaround in 2018 as recovery in spending is "imminent", says a report.

The underperformed the Sensex in 2017 as revenue growth was tepid, while investment in the business and a strong rupee kept margins in check.

According to the global major, a turnaround in IT spending could quickly turn sentiment on these stocks.

Though the sector faces risks from automation and a slower pace of market share gains from global vendors, a cyclical rally could be in the offing, it added.

As per Morgan Stanley's January-2018 proprietary survey, an acceleration in IT services growth relative to 2017 is likely.

Moreover, recent deal announcements by (such as the USD 2.25 billion deal win by last month) indicate potential conversion of deal pipelines.

"Valuations are at or below long-term averages and an improving global macro could spur tech spending, which could re-rate stocks," report said, adding that the looks "attractive".

The report further noted that push out in tech spends could hurt stock performance. Further, rupee appreciation is a margin headwind and any renewed concerns on regulations, especially visas, or new US tax laws could hurt sentiments.

First Published: Tue, January 16 2018. 16:19 IST
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