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Thursday, July 15, 2010

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.

3 comments:

  1. I think Power Sector and Telecom is a good bet long term.

    ReplyDelete
  2. power ,infrastructure and automobile sectors are the growth sectors

    ReplyDelete
  3. are your views also same on mid cap it companies like polaris 3i infotech?

    ReplyDelete

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