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Priyanka Bhambwani's home page - updated monthly |
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Is technology dead ? - May 18, 2003 As the head of I.T.E.S. at Bsplindia.com, I am exposed to to a plethora of issues that are both directly connected to my line of work and those that are completely out of sync with my activities. What I have seen happen to the electronic media business, especially the online business encourages me to speak about an issue that is both informative and profitable for stock investors. The question is - is information technology dead ? More importantly, should you write off the software stocks ? Let's take a look - In the latter half the 1990's, people started looking at software stocks with a curiosity level that was higher than the summer temperatures in India. Fundamental analysts did not know how to value these high EPS stocks and technical analysts saw huge upmoves that left the most battle hardened technician fazed. Y-O-Y growth rates of 100 % and above were taken for granted. Consequently, prices kept rallying into the stratosphere and were taken for granted as sustainable. It was common to hear that Infosys would touch Rs. 50,000 Wipro Rs 25,000 and Satyam Computers Rs 10,000. This is but a brief history of the past ! The current scenario is all but rosy ! Wipro trades below 900, Infosys below 2800 and Satyam below 180. As far as getting back your capital is concerned, you should forget it ! The rates you bought these stocks will probably not come again - not very soon. But the sector is changing it's business model. The undercurrents are changing. Gone are the days when software companies enjoyed fat profit margins and had to push very little on the volumes growth front - relatively speaking that is. Now they are aggressively bidding for onsite / offshore contracts at cut throat rates, are willing to take higher risks where taking a hit on currency fluctuations are concerned. The model is into reverse engineering mode - higher volumes & lower margins. Instead of pushing mega ideas, they will be forced to touch your day to life and replicate or even replace some of your day to day functions. You have probably heard of washing machines / microwave ovens / electric pressure cookers that will be activated by you sending these appliances an e-mail from your office, timing things in a manner that your chores are completed by the time you reach home. It will be possible by using small smart software packages, copies of which will be required in millions. Another thing that comes to mind is a facility to withdraw funds from your bank account after banking hours - even if you do not posses a credit / debit card. The banks would be all connected to a central mainframe and you can utilise your funds in case of an emergency using the internet. These are just a few common place examples of how software services can touch our daily lives and more importantly, software companies can maintain that rate of growth to continue dividend payouts. What is required is that software companies should now seriously start looking inwards to cater to our huge domestic market in addition to the export thrust. As an investor, I would be happy if my company is making higher profits - exports or domestic doesn't really matter. In the long run, software companies will be treated somewhat like old economy companies. Remember how many of us had telephones in the 1970's & 1980's ? It was a novelty. Now it's a necessity and with so many players around, most are bleeding their accounts. Only the strong will survive - even in the software sector. Yahoo has shown the way - collect pennies from a few million users and fatten the bottomline. Reliance Infocom is going the same way.... SEBI disclosure - the author of this article does not have any exposure to the securities mentioned above. Priyanka Bhambwani is the ITES head at Bsplindia.com and these views are her own. She invites your feedback at priyanka@bsplindia.com Your feedback is important ! Please click here to let us know your views. Click here to inform a friend about this page on our website. |
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