Should you buy stocks of IT companies for long term?

I came across an article while researching on future of Indian IT Stocks and to make a decision whether I should buy stocks of IT companies for my long term investment portfolio. Here is my opinion.

The article talks about "Stop Outsourcing and Create American Jobs Act of 2010", an act that is targeted to punish American companies who "outsource" the projects and work to offshore companies such as IT companies in India.

Title and link of article: Another Proposed Law To Stop Offshore Outsourcing. If you read the first immediate comment of an American reader just below the article, you would understand the sentiments people carry against outsourcing, specially India. Why India? Because Indian IT companies have largest share of outsourcing from American corporates.

Last month, Congressmen Gary Peters, Tim Bishop and Jerry McNerney proposed this legislation to curb outsourcing to countries such as India. The Stop Outsourcing and Create American Jobs Act of 2010, the Bill clearly aims to discourage US firms from shipping jobs overseas.

So how does it bothers IT stocks in India? If this act passes, American government could go barring the American companies, who are outsourcing the work, from participating in government contracts. So these companies have to think twice before outsourcing.

A lot is being written against the outsourcing and to keep the American jobs in America. The Bill, being initiated by Senator Charles Schumer, is expected to focus on H-1B and L1 visas given to IT and other professionals and could possibly impose some restrictions on them. The similar is expected to be done to keep jobs in American soil and with Americans, as a very common feeling is developing that recession has took a toll on millions of American jobs and Americans are losing their jobs to other countries.

The elections to the US Senate are scheduled to be held in November 2010 and the sentiment against outsourcing will only rise in time to come.

Another fact lies in the title of this article "China replaces India as preferred outsourcing destination". Though at the moment the country has still not reached the level of maturity seen in India, the growth of China's outsourcing market is significant. Indian IT companies have got a big competitor right next door and it is rising!

With these developments, I strongly feel that it is going to be extremely difficult in future for Indian IT companies to even keep up the growth rates they are accustomed to in last 10 years. This ultimately is going to take toll on their overall profitability and profit growth. The kind of explosive growth experienced by Indian IT companies in past few years could stall in future and so would freeze the growth of their stock price.

Finding a multibagger stock out of Indian IT companies stable is going to be extremely difficult in future. It is my gut feeling to not to keep my portfolio relied on IT stocks for growth. I would be glad to know your opinions, you may use comment form below to post your opinions.

IT Sector - Top Players

S. NO.	Companies
1.	TCS
2.	Infosys
3.	Wipro
4.	HP
5.	IBM
6.	Satyam
7.	HCL
8.	Patni
9.	Polaris
10.	Cisco
11	KPIT Cummins
12	Kanbay
13	Microsoft
14	Dell
15	Larsen and Toubro
16	Compare Infobase
17	Accenture
18	i-Flex Solutions
19	Cognizant
20	Sapient
21	Mphasis

Is the Indian IT Sector set for a Stock Market rebound ?

The Indian IT sector , the darling of trade pundits is seeing some kind of resurgence since the start of the year.After a tumultuous last year which saw the Indian Stock Market losing nearly 50-60% of its value, IT stocks fared ever so badly.

It was however evident since most of the revenue that the Indian IT sector comes from overseas with almost every company getting around ~60% revenue through North America alone.A recession hit U.S. economy came as a jolt to the IT sector since IT spending literally froze overseas.

Now, with the economy on its path to recovery and the U.S. getting back on its feet, the picture looks rosy for the IT/ITES sector in India.

• Industry analysts are confident of a turnaround and they have come up with promising IT spend estimates.
• The Indian IT giants Infosys, TCS have both bettered the industry expectations with their quarterly results.

The pullback of the IT sector is evident from the fact that Infosys, Wipro are all trading close to their 52-week highs.With Infosys raising the revenue guidance for the fiscal, the market experts have further raised their expectations from the IT sector and recommending BUY calls on stocks Like Infosys.

BSE IT Index ( MoneyControl)

However, is it all good news for the IT sector that makes it a no brainer to start building positions in the IT stocks? Well, I have my concerns,

• Rupee Dependency : As mentioned earlier, The IT sector derives a major chunk of its revenues from overseas.That means that the de-facto billing currency is Dollars( $) . A appreciating rupee spells dooms for the IT companies and eats into their profits.Rupee recently touched its 15 month highs and continues to stay strong against the dollar.

Is The IT Sector taking into account the Currency Exposure

• Human Resources : After huge cost cutting measures and a large scale hiring freeze in the last year, the IT sector has taken off salary freeze and announced plans to ramp up hiring.From the quarterly reports, both TCS and Infosys have reported resource utilization around 60-70% . The bottom line is going to take a hit with increased salaries and increased hiring.

Is The IT Sector confident of Increased Business and Efficient Resource Utilization

The two factors directly influence the top line and the bottom line respectively.The market outlook looks positive for the IT sector but i presume a Cautious approach is the way ahead as far as investments in the IT sector is concerned.

Top 20 IT Employers in India

Here is an interesting note from the people behind the survey:

While majority of the large Indian as well as MNC companies resorted to layoffs as a business necessity; they did very little to control the knee-jerk response. Things took an ugly turn, with negative headlines on the HR front dominating media coverage, sometimes at the risk of the companies image.

While many of these reports were true, many were not entirely so. And this we realized only on approaching each company for the DQ-IDC Best Employer Survey 2008.

The lack of transparency and hesitation in sharing information was discomfiting. Four large companies ended up not participating and all for the first time in the history of this research.

The reasons cited were corporate policies preventing the sharing of sensitive HR information. For all those who love reading between the lines, the little said the better.

Based on the above comment, we all can guess who the top 4 companies might be. Does it mean that these companies have hidden skeletons in their closet ?

Here is the complete list of Top 20 IT Employers in India.

Best 20 IT Employers in India
Rank 2009	Company	Empex	Rank 2008	Change
1	HCL Infosystems	88.2	3	2
2	iGate Global Solutions	85.5	1	-1
3	Rolta India	84.5	4	1
4	RMSI	84.2	2	-2
5	SAS Institute India	77.3	7	2
6	R Systems	72.0		New
7	Perot Systems	71.9		New
8	Tavant Technologies	71.7	9	1
9	Datacraft India	70.8	13	4
10	Synechron	70.3	8	-2
11	Ingram Micro India	69.7		New
12	Tulip Telecom	69.17	18	6
13	Sify Technologies	68.75		New
14	SPAN Infotech India	68.5	10	-4
15	Hexaware Technologies	68.4	11	-4
16	Patni Computer Systems	68.4	29	13
17	Infogain India	68.1		New
18	Unisys India	67.2		New
19	Novell	66.8		New
20	Virtusa	66.5	24	4

HCL Infosystems takes the top spot, followed by iGate & Rolta. Some notable names Like Sify Technologies comes at 13th, Hexaware Technologies at 15th and Patni Computer Systems at 16th.

To be honest, I have not heard about half of the companies on this list.

Top Reasons Why people change their jobs:

More than half of them change their jobs because of money, while a third are looking for overseas opportunities or career development.

Surprisingly, only 18% look to change the job for job security.

Top 100 Outsourcing Companies in World for 2010 !

Top 100 Outsourcing companies of 2010

(Indian companies highlighted in bold)

RANK	COMPANY (LEADERS)	KEY STRENGTH
1	Accenture	Customer References
2	Infosys Technologies	Demonstrated Competencies
3	Sodexo	Balanced Performance
4	Wipro Technologies	Management Capabilities
5	IBM	Management Capabilities
6	ISS	Demonstrated Competencies
7	Tata Consultancy Services	Management Capabilities
8	ARAMARK	Balanced Performance
9	CSC	Demonstrated Competencies
10	Convergys	Customer References
11	ACS	Management Capabilities
12	Jones Lang LaSalle	Management Capabilities
13	CB Richard Ellis	Customer References
14	Johnson Controls	Demonstrated Competencies
15	Diebold	Balanced Performance
16	Amdocs	Balanced Performance
17	Capgemini	Customer References
18	Colliers International	Demonstrated Competencies
19	NCR	Customer References
20	Genpact	Customer References
21	Aegis	Demonstrated Competencies
22	Hewitt Associates	Management Capabilities
23	Intelenet Global Services	Demonstrated Competencies
24	NCO Group	Demonstrated Competencies
25	Firstsource Solutions	Demonstrated Competencies
26	Neusoft	Customer References
27	Lionbridge	Management Capabilities
28	Stream Global Services	Demonstrated Competencies
29	EMCOR Group	Management Capabilities
30	ADP Employer Services	Management Capabilities
31	Sitel	Customer References
32	HCL Technologies	Management Capabilities
33	CGI Group	Demonstrated Competencies
34	TeleTech Holdings	Demonstrated Competencies
35	iGATE Global Solutions	Balanced Performance
36	NCS	Balanced Performance
37	Inspur	Customer References
38	Ceridian	Balanced Performance
39	Cognizant	Demonstrated Competencies
40	Softtek	Demonstrated Competencies
41	Pitney Bowes	Management Capabilities
42	CPA	Demonstrated Competencies
43	MindTree	Size & Growth
44	Tech Mahindra	Customer References
45	Insigma	Balanced Performance
46	Mastek	Balanced Performance
47	Syntel	Demonstrated Competencies
48	CPM Braxis	Management Capabilities
49	ITC Infotech	Customer References
50	Océ Business Services	Demonstrated Competencies
51	SPi	Demonstrated Competencies
52	transcosmos	Demonstrated Competencies
53	EPAM Systems	Management Capabilities
54	Unisys	Demonstrated Competencies
55	Oracle Financial Services	Demonstrated Competencies
56	Patni Computer Systems	Management Capabilities
57	Headstrong	Balanced Performance
58	WNS Global Services	Management Capabilities
59	Stefanini IT Solutions	Balanced Performance
60	HOV Services	Customer References
61	IBA Group	Demonstrated Competencies
62	Hexaware Technologies	Management Capabilities
63	Williams Lea	Demonstrated Competencies
64	Intelligroup	Customer References
65	hiSoft Technology International	Customer References
66	EXL Service	Demonstrated Competencies
67	ChinaSoft International	Demonstrated Competencies
68	Concentrix	Customer References
69	Neoris	Balanced Performance
70	Newmark Knight Frank	Management Capabilities
71	Collabera	Demonstrated Competencies
72	VanceInfo	Demonstrated Competencies
73	Hinduja Global Solutions	Customer References
74	Outsource Partners International	Balanced Performance
75	Dextrys	Demonstrated Competencies
RANK	COMPANY (RISING STARS)	KEY STRENGTH
76	Scicom	Demonstrated Competencies
77	Ci&T	Balanced Performance
78	CIeNET International	Size & Growth
79	Xceed	Management Capabilities
80	Itransition	Management Capabilities
81	Grupo Prominente	Customer References
82	InterGlobe Technologies	Management Capabilities
83	Globant	Size & Growth
84	MERA Networks	Management Capabilities
85	Intetics	Demonstrated Competencies
86	Auriga	Management Capabilities
87	Bleum	Size & Growth
88	Beyondsoft (Beijing)	Demonstrated Competencies
89	M&Y Data Solutions	Management Capabilities
90	China Talent Group	Size & Growth
91	Global eProcure	Customer References
92	Nagarro	Customer References
93	Corbus	Management Capabilities
94	ePerformax Contact Centers & BPO	Management Capabilities
95	Grupo ASSA	Demonstrated Competencies
96	SoftServe	Management Capabilities
97	gem	Demonstrated Competencies
98	Emerio	Management Capabilities
99	Objectiva Software Services	Management Capabilities
100	Synygy	Management Capabilities