Tech stocks: Are they a good investment opportunity?

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Tech stocks: Are they a good investment opportunity?

23 May 2017
Can’t decide whether you should invest in tech stocks or not? This could help you decide.
 
 

On 30 January 2017, the Trump Administration said it would recondition the H-1B work-visa programme for foreign nationals working in “specialty” fields. The group generally includes computer programmers from Indian tech companies that have been contracted by American clients. 

US technology firms face an ongoing struggle to find suitable computer-science professionals, and therefore look overseas to fulfil their needs. 

President Trump’s overhauling envisages more than doubling the minimum salary of such visa?holders to $130,000 from the current wage of $60,000. The clause seriously threatens to undermine the profits of Indian vendors like Tata Consultancy Services (TCS) and Infosys – simply because the US accounts for 50-80% of their revenue.  

But there is a wider ramification: if the bottom lines of Indian outsourcers suffer, so do the investors. Analysis show that implementing the minimum wage bill could hit the operating margins of Indian IT companies by 500-700 basis points.  

Little wonder then that the day after the announcement, stocks from India’s leading IT firms plummeted by around 9% – or got eroded by about Rs. 50,000 crore in value. Tech Mahindra dived 9.68% on the Bombay Stock Exchange, TCS by 5.46%, Infosys by 4.57% and Wipro went down by 4.11%. 

 

Fallout Scenarios 

From the viewpoint of Indian investors, salvation could lie in the decision of American tech majors to move the courts challenging President Trump’s H-1B work-visa programme.

The legal move was necessitated because, aNasdaq, the second largest US stock exchange said on its website on February, “the US is increasingly incapable of producing this talent itself” and that “the (US) technology sector ... cant function without it (foreign talent).  

 

Nasdaq said if tech companies are unsuccessful in their letters of appeal and lawsuits against President Trump, and the proposal is enforced, they could employ the same talent in international facilities such as those in IndiaA company's main motivation and objective is to generate profit,” it explained. 

 

Thus, ultimately, old jobs could stay with Indian IT companies. Furthermore, given that legal challenges will take time to be resolved, domestic tech firms will have time to tweak their business models, and that could include hiring locally in the US. 
 

Companies with a greater number of visa holders in the US – thus facing a greater exposure to Trump’s protectionism – seem to have already factored in immediate upheavals. Thus, frontline IT stocks are trading at attractive levels again. 
 

 

Bullish Future 

 

In the last week (10 May 2017 – 17 May 2017), five tech stocks found their way among the top gainers on BSE100. Leading the pack was TCS with a little over 4%, Wipro was close to 2%, while HCL Tech, Tech Mahindra and Infosys, each registered less than 1%. The five stocks were also among gainers on NSE-50 during the same period. 

One factor that should be good news for Indian investors is the improving financial health of US clients, which in turn has enthused Indian analysts.  

 

For instance, Ridham Desai, head of India Research and India Equity Strategies at, Morgan Stanley, thinks that the market has become “too pessimistic” over tech stocks, which to him are “cheap”. 

 

“If the US growth is accelerating and wage inflation is rising, then Indian tech companies are in a sweet spot as American companies have to outsource, notwithstanding the policies they would have,” Desai told?Business Standard newspaper recently. 

 

The bottom line: do not give up on tech stocks in 2017.  

 

 

Note: “The views and opinions expressed in this article are those of the author’s, and do not necessarily reflect the views of Tomorrow Makers.” 

 

Disclaimer: This article is intended for general information purposes only and should not be construed as investment, insurance, tax or legal advice. You are encouraged to separately obtain independent advice when making decisions in these areas.  

 
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