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Budget 2013 - IT

Tuesday 19 March 2013

There is still growth and promise to IT.

The Union Budget announcement did not have any positive or negative implications for the IT sector, making it largely neutral for the companies, barring minor positives.

The exemption of dividend received from foreign subsidiaries from DDT is expected to have a positive impact on the IT companies as the outgoing costs on DDT will be lower. As IT companies receive significant sums from their foreign subsidiaries as dividends, this could result in some savings on costs. Some companies may increase the dividend payout. This is not expected to have any material impact on the earnings of Companies.

However the additional 5% surcharge will lead to an increase in the tax liabilities of IT Companies by about 5% and may marginally impact profits. Companies, in the sector are also experiencing higher competitive pressures and are improving efficiencies to counter the same.

So who wins this year?

Stocks of most IT companies have risen post 3Q numbers. We expect decent returns over the medium term, subject to near term volatility.

Indian vendors have moved up the value chain. They are focusing on newer opportunities like cloud computing, analytics, mobility, etc. Newer pricing models are likely to emerge and increase growth prospects of companies while also making business more non-linear.

Also, a few focused smaller companies with expertise on select verticals are moving up the value chain and are attracting larger clients, thereby, improving their longer term prospects.

Want the stalwart of the industry analyze the budget for you? Click here.

Looking to invest in the IT sector? Click here to open an account with Kotak Securities.

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