Sector Watch: IT

The IT sector has underperformed the Sensex in FY06. But hopefully this is set to change next year.

In the past three years the Sensex has given a return of 295% in comparison to the 297% return of the BSE IT index. But in FY06 the IT industry was only able to give a meager return of 51.9 % compared to a spectacular 82% by the BSE Sensex. This underperformance of the IT sector was due to the lower profit margin and overall expectation of sub-par performace.

Major results for this year have come out and the numbers do their own talking. TCS showed 36% sales growth to Rs. 13,252 crores with profit growth of 50% to Rs. 2,956 crore. Infosys posted a sales growth of 33.5 % to Rs. 9,521 crore and profit growth of 30% to Rs 2,458 crore. Wipro registered 30% sales growth to Rs. 10,603 crore and profit growth of 27% to 2,309 crore.

The topline growth next year would certainly be higher than the FY06 figures. TCS and Infosys have given guidance with strong margins. Eventhough there are some concerns over the impact of rising salary costs over the margins. But strong demand for the IT industry would continue next year and IT could very well be the hottest sector in FY07.