IT Sector Valuation Reset: Bargain Opportunity Or Bigger Trouble Ahead? | Business News | ET Now

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[00:00:00]We have seen in the last three to four quarters play out is many of the IT companies losing between 40 to 50% in value.

[00:00:07]Uh mid mid cap mid tier companies which are trading at 20 35 times have come down to 24 25. The The top tier which was trading around 23 25 is now at 15 16.

[00:00:19]Uh is that the normalized valuation for this this kind of sector now?

[00:00:24]I still believe that the valuation is more an outcome. I think it's going to be very very important in terms of uh basically what's basically going to be the revenue growth outlook and what's going to be the margin uh profile of these companies. Ultimately, market is a slave of growth, of margins, of cash flows, and earnings. Uh this is really where the market is going to be and you deliver more, you fetch higher valuations, you deliver less, uh you get less valuations. We clearly believe that multiples and valuation multiples are more an outcome rather than uh the kind of input itself. So, honestly, I still think at this stage, I don't think that's very important whether they can find support at a particular valuation multiple. Yes, for the short term, the space looks oversold. Uh you might see some basically investors trying to kind of do a trade out there hoping for a bounce back. So, maybe to that extent, maybe in in the short term in the near term, maybe from a price point of view, the worst could be behind. But, I think it'll be very very important to know really what the commentary comes out from the IT services companies over the next maybe couple of quarters or so. I think it's only best once we hear them, see what they have to deliver, and then really be able to take that big call.

[00:01:39]Interestingly, you spoke about the margins part of it. Many of the IT companies are holding on to the margin levels.

[00:01:45]Uh and it's much better and higher than the global peers uh whose margins are much lower there.

[00:01:51]Uh do you think uh you know at some point in time the market will look at the margin even though there is a revenue deflation which is going to come in Uh see that okay there is a good EBITDA margin which has been sustained by these IT companies and they should be looked at at an EBITDA multiple point of view.

[00:02:09]So Sashi, I think the the the big challenge still will remain is it going to be growth outlook. I think you could still enjoy better margins because basically either the currency has depreciated so you have tailwinds of a currency depreciation or you essentially don't need to increase headcount or you probably engage into some bit of downsizing.

[00:02:28]So even a 5 to 10% downsizing can basically contribute to the margins.

[00:02:33]So to that extent I'm not sure whether the market is currently focused on margins. I think the market is really focused on right now is basically relevance of this IT model and that basically can companies restructure themselves, re-engineer themselves to make themselves relevant. I think that's really the big question and what does all of this translate into a medium-term growth trajectory, growth in revenues is what basically is the big question or the billion-dollar question.