Wipro Limited (WIT) More Cautious on 2013 Than Tata Consultancy Services Limited (TCS) and Infosys Ltd (INFY)

The uncertain economic environment in the West coming from the fiscal cliff, debt ceiling and European debt crisis caused several leading clients of TCS, Infosys and Wipro to cut back on their IT spending in 2012. Research firm Gartner estimated that IT expenditure registered modest growth of just 1.8% in 2012, but it is likely to almost triple to 5.2% in 2013. On the other hand, other industry experts have identified that real growth will most likely start occurring beginning in the final quarter of 2013; before that, things will remain challenging.

In other words, while the long term outlook for Indian IT firms remains positive, particularly because India’s IT sector enjoys a cost advantage that it’s European or American rivals do not have, the midterm will be tough. Recent macro-economic data from the U.S. and rapidly rising commodity prices will weigh heavily on the U.S. economy as 2013 rolls on.  Europe will continue to limp along now that the euro is strong enough to limit the rise in energy costs, allowing the weaker members of the Euro-zone to stabilize their economies while still receiving some support from the ECB, if only indirectly.

* Tata Consultancy Services Limited (NSE:TCS)
** US$1 = 53.89 Indian Rupees.

In the last six months, the ADRs of Wipro and Infosys have outperformed QGEM. TCS’s stock at the NSE has trailed behind its rival’s ADR but the company gives a competitive EPS, even in US dollar terms, and has delivered a significantly higher return on equity. TCS is the fourth biggest holding in QGEM. Besides TCS, QGEM also includes other firms in India’s IT sector, including Wipro and Infosys. The ETF allocates more than 75% of its funds to the technology sector of China and India.

The article Wipro More Cautious on 2013 Than TCS and Infosys originally appeared on Fool.com and is written by Peter Pham

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