Opportunity in crisis! RBI sees the biggest one for Indian IT

NEW DELHI: The Reserve Bank of India sees pockets of opportunities for IT companies in the post-Covid world, as people have been forced to sit back at home, which in turn has increased the use of internet services.

Businesses across the spectrum have to change their models and strategies now. Many of them – gyms, schools and colleges, auto sales – have gone online for better customer connect.

“While companies may have put their IT expansion plans on hold and cut back their overall IT spends, there could be pockets of opportunity in software and related services for Indian IT due to an increase in demand and usage for certain IT-enabled services among the consumers and companies impacted by the pandemic,” the central bank said in its annual report released on Tuesday.

Riding on this hope, IT stocks have surged massively from their March lows. Since March 23, 26 stocks in the BSE IT index have more than doubled their prices, with Tanla Solutions rising the most at 449 per cent. None of the stocks have given negative returns for the period.

Among other biggest gainers have been Majesco, Intellect Design, Mastek, Subex, Zen Technologies, Bilasoft, Expleo Solutions, 3I Infotech, Ramco Systems and Kellton Tech Solutions, which have risen 200-300 per cent.

Capital flow to face headwinds

Large capital flow in last one year has resulted in foreign exchange reserves going well above $0.5 trillion, but the next one year will be a challenging one given the dynamic economic condition.

“The prospects for capital flows are uncertain due to their sensitivity to shift in the global macroeconomic outlook. Going forward, the effectiveness of policy measures undertaken to address Covid-19 related stress is likely to play a critical role in preserving the resilience of India’s external sector,” RBI said.

Foreign investors have been extremely bullish on Indian stocks in last few months, but overall in 2020 net equity inflows have been around Rs 30,000 crore. When counted with inflows to Indian debt, foreign investors have withdrawn a net of Rs 55,157 crore this calendar, data available with NSDL showed.

Analysts at BoFA Securities and Morningstar India in separate reports have predicted a slowdown in foreign fund flows to domestic equity as valuations have surged while economic conditions remain far from ideal.

RBI also highlighted that while terms of trade gains may provide some respite, the outlook is uncertain for exports, remittance inflows and the tourism sector, which will tilt India’s balance of payments situation to negative.

The central bank underlined that India’s balance of payments in 2019-20 reflected muted domestic activity, but capital flows were robust, which engendered a large accretion to foreign exchange reserves.