First up, this sort of a growth number which is better than the street estimates and along with that there is an upgrade in the guidance as well. How does this bode well for the Indian IT space? Give us your take on that.
Sandip Agarwal: So, as you rightly mentioned the numbers were better than expectation and it obviously implies that the guidance has to be upgraded because we are now in the final quarter and if the guidance would not have been upgraded, it would have meant that the current quarter would be very-very low.
So, guidance upgrade is more of a technical thing. The good thing is that the numbers were good. But at the same time if you see the booking numbers, as you rightly mentioned also, the booking numbers are looking quite poor because it is down 7% in local currency and 6.5% in dollar and also more worrisome this time is that consulting has not seen such a sharp dip in the order book, it is down only 2.2, but the outsourcing is down 9.8. So, there is some bit of risk or cautiousness which is there and when we were hearing the conference call, that was something which gave a very interesting insight.
The management mentioned that they think that CY25 will continue to be uncertain. Now, remember, Accenture year end is 31st of August. So, another five months according to them will also be weak.
So, there are two implications of that. One, next year guidance for Accenture, next full year guidance for Accenture cannot be very strong because first half will be weak according to them because of uncertainty.
And similarly the whole hope in Indian IT services which was there that H2 will be better than H1, that is now also jeopardized because if CY25 is going to be bad, then it will be very hard to recover anything beyond that in the Jan, Feb, March quarter because again Feb has less number of working days. So, my understanding is that there is quite a bit of uncertainty and because of that there will be some pressures.
While the numbers have been slightly better than expected and the guidance has been raised, it has been only nominally raised and compared to Indian IT companies, their margin profile is much lower. Do you believe that this nominal increment in the guidance should just be taken with a pinch of salt or do you believe it could actually create a big ripple effect for Indian IT?
Sandip Agarwal: So, I believe that this nominal increase in guidance will have not much positive impact. In fact, if they would have said that we are seeing early signs of recovery or there is lower level of uncertainty and all that, I think that would have been taken very-very nicely.
But now with this, even H2 story of Indian IT looks little risky. So, I will say that while numbers are good and there is a technical upgrade in guidance, but at the same time there is more uncertainty than previous quarter in terms of commentary, so that will weigh upon Indian IT and this time for the first time in last so many quarters the outsourcing has shown some signs of weakness, so that leads me to believe that there is no clarity and there will be little more uncertainty even in the commentary of Indian it because they generally mirror what we see in Accenture’s case.
So, bottom line IT stocks will not go up, very simple?
Sandip Agarwal: They have gone up too much in last six-seven months
Exactly numbers ignore nothing, do you agree with me?
Sandip Agarwal: Because these valuations are not justifying what is happening because you have one sector which is upcoming sector that can grow at a phenomenal rate, but the IT services cannot grow too much, means it is a 6-7% growth industry after some market share gain you can do 8-9% on structural basis and for that if you are giving a PEG ratio of three-four, it is quite difficult to justify that.
At what point in time you would say it becomes attractive, like three months ago, HCL Tech was a dividend yield stock. The dividend yield in HCL Tech had gone higher than Coal India if you remember. Are we reaching that point in it where suddenly it will be the word value and contra which could be at play?
Sandip Agarwal: So, in IT it is very easy to track when it is bottom, when they starts postponing the variable pay, when they start delaying the offer letters, when they start not committing on the wage hikes, I think that period was in last year when everyone was postponing salary, wage hike and all those things that is the time we were very-very bullish and we went very-very massively overweight on the whole sector and then in six months we made very-very good returns and then everything has gone again in the euphoric zone and now we are not so optimistic in near term.
Yes, if valuation come down substantially either through better earnings or through time correction, then it will be time again to re-evaluate but as of today it does not look like that there is much reward here in comparison to the risk.
