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Strategies & Market Trends : India Coffee House -- Ignore unavailable to you. Want to Upgrade?

To: Mohan Marette who wrote (3602)	1/27/1999 10:54:00 PM
From: Mohan Marette	Read Replies (1) \| Respond to of 12475

IT stocks record never-before P/Es Sanjay Kular -------------------------------------------------------------------------------- MUMBAI 27 JANUARY SECTORS like information technology and pharmaceuticals are currently reporting what appear to be the highest ever recorded P/Es for any sector in the history of corporate India. IT stocks like Wipro, Infosys, NIIT and Tata Elxsi are also, for the first time, displaying price to earnings ratios (P/Es) on par with global tech majors in the US. P/Es of these companies range between a mind-boggling 123 (Wipro) and 83 (NIIT). Fast-moving consumer goods is the only other sector which commands such high PEs. For example, Indian Shaving Products is traded at a P/E of 89, Abbott Laboratories at 103, Parke Davis at 89 and Glaxo at 78. Shares of Hindustan Lever are traded at a P/E multiple of 55. Even in boom times, blue chips like Century Textiles, Tata Steel, Reliance Industries, Hindalco Industries, Kotak Mahindra, Lakshmi Machine Works, Cipla, Madras Cements never saw these P/E multiples. The Economic Times analysed earnings of the first-half (April-September) of 1998-99 to gauge price-earning ratios. For those like HLL and Glaxo India which follow the calendar year, earnings for the first-half (Jan-June) have been taken into account for the purpose of the study. Price-earning multiple, a financial parameter, denotes the number of times the scrip is quoting to its earnings per share (EPS). A P/E multiple reflects investor perception of a particular stock and a variety of things concerning its prospective (future) earnings, quality and sustainability of earnings, return on net worth, integrity of management and of course, shareholders' value. For example, Wipro on Wednesday was traded at a P/E multiple of 123, Infosys at 83 and NIIT at 83. Bill Gates' Microsoft is, incidentally, traded at a P/E multiple of 69 on the Nasdaq. Analysts justify the attraction of such high P/E multiples to their strong earnings potential in the years to come. The IT sector is envisaged to grow by a robust 50 to 70 per cent per annum for atleast the next five years. Industry association Nasscom says the Indian IT industry is expected to grow to $85 bn by 2008 from a mere $2.75 bn in 1998. Currently, India's share in the global IT industry is less than 2 per cent. "Worldwide, the size of the IT industry was estimated at $900 bn in 1998 and is expected to grow by a strong 4 to 5 per cent per annum. Of this, $300 bn is software products and hardware. The balance $600 bn is application software, data processing and migration which is growing by a 11 per cent per annum," said Vijay Thadani, chief executive officer (CEO) of NIIT. Out of the projected figure, exports is expected to account for $50 bn and domestic markets for $35 bn. Even at this level, India's share in the global market is unlikely to cross five per cent of the then global IT industry size, say sources. ''IT companies may continue to attract these high price-earning ratios as long as the robust quarter-by-quarter maintains. The moment the growth slows down, IT companies would witness sizeable offloading by investors," said a prominent broker on Dalal Street. economictimes.com