Why IT stocks are a good bet? Benefits of investing in one

Pranati Deva
Updated: 30 Dec 2021, 09:26 AM IST
TL;DR.

From digitisation to improved reach in world markets, let’s look at why you should always have IT stocks in your portfolio.

From digitisation to improved reach in world markets, let’s look at why you should always have IT stocks in your portfolio.

From digitisation to improved reach in world markets, let’s look at why you should always have IT stocks in your portfolio.

Choosing the right stocks to invest in is not easy. An investor spends a lot of time thoroughly researching stocks and trends to decide the perfect portfolio. There are a number of sectors outperforming markets and preferred by experts, IT is one of them. It is a favored choice for most portfolios.

The technology sector has been in demand since the 1990s when the internet boom started in the country. And ever since, the usage and dependency on the internet, data, and information have only increased and the trend is not going anywhere.

Nifty IT has been one of the best performing sectors in the last 1 year, rising over 70 percent as compared to a 55 percent rise in Nifty. It has surged over 125 percent in the last 3 years.

The sector mainly contains stocks that create software and provide various IT and consulting services, data processing, internet security, etc.

Some major players of the sector include TCS, Infosys, HCL, Tech Mahindra, etc. These companies have already established brand value as well as given exemplary returns to their investors. Such companies will give stable and consistent returns in the long term as well because of the continued demand in the sector. However, if you want companies with better growth potential you can invest in mid-cap IT companies like L&T Infotech, Mindtree. However, the risk will also be a bit higher.

According to experts, many factors are boosting the growth for this sector like global digitisation, technological advancement, Digital India roadmap, among others. The revival of the US economy and the strengthening of the dollar is also good news for the sectors. Even when the whole nation was battling the pandemic, deal wins for the sectors did not get an impact but rather kept rising indicating the potential and demand for tech services across the globe.

Let's look at some reasons why you should consider investing in this sector:

Potential

The services offered by IT firms never go out of demand and the scope keeps on increasing. With the government focussing more on digitisation in the country, the growth potential of IT stocks will only rise. Also, the internet firms launching in different sectors like e-commerce, edtech, fintech, and older companies going digital and even the government boosting the Digital India campaign, will only lead to an increase in demand for the tech industry.

Exports

The majority of the revenue of IT firms comes through exports which means that these firms earn mostly in foreign currencies. So even when the rupee is depreciating which weakens the overall sentiment of the markets, IT stocks outperform. This is because a weak rupee is beneficial for such firms as they earn more when exporting due to currency conversion.

Bigger Reach

The IT firms in India have a very sustainable and profitable market in the US, Europe, and other countries. They are not only dependent on the demand generated in India. For example, the US is responsible for 2/3rd of the total IT exports of India. This showcases that the firms have a deep reach in other world markets which helps increase the revenue growth of these firms.

Services

With the scope of digitisation growing, the services they offer are also increasing. They are adapting to the new demands from across the world. from social media to data analytics to cloud computing etc, IT companies are always in lockstep with the growing technological needs of the world. This not only leads to an increase in revenue but opens up these firms for greater potential growth.

Considering these factors, the IT sector can be treated as one of the best as well as safe sectors for long-term investment. The sector has also been a very consistent performer in the past. Despite market volatility, IT firms have provided robust returns to their investors and experts believe that this trend will only continue.

First Published: 30 Dec 2021, 09:26 AM IST
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