Why the recent dip in exports for Indian IT and healthcare companies might not have any long-term impact
27-Apr-2023 •Hemkesh Khattar
The pandemic and the series of geopolitical unrest were a reality check for the believers of the global village dream.
As soon as the world hit the panic button, most economies decided to cut down on international trade. And the companies, still shaking from the sight of their battered supply chains, decided that it's better to abandon the lure of cheap labour.
At least, that's what the headlines have been saying. But we decided to check what the data says. We wanted to check how the industries that are heavily dependent on exports fared during times of crisis.
In terms of revenue from exports, the IT sector and the Healthcare sector are the clear head runners. So we checked the performance of the BSE IT and Healthcare indices in FY23.
And the results were not surprising. The markets weren't feeling too optimistic about the prospects of these sectors due to the fears of a global recession. The BSE IT and BSE Healthcare indices tanked 21.9 and 10.2 per cent, respectively, in FY23.
However, we weren't convinced. We are not saying that the market's fears are unfounded. But in the past, when such crises came, the price corrections in these segments were driven more by sentiments than by actual decline in financials.
For example, this is how the two indices reacted to the 2008 housing crisis in the USA. Between April 2007 and March 2009, the BSE IT and BSE Healthcare plunged by about 51 and 20 per cent, respectively.
But look at the annual revenue of the top-five companies by market capitalisation (in both IT and pharma) that earned at least half of their annual revenues (each year) from exports from FY06 to FY12. You will find that the financials tell a different story.
In the IT sector, while there were some short-term dips, there was still robust growth in the long term. And for pharma companies, the impact of the macro headwinds of 2008 was even less, with most showing no significant decline in their earnings.
The final verdict
The Indian IT and healthcare sector has shown resilience in the face of global turmoil in the past. And based on that, it can be said that much of the ongoing sentiment that a recession in the USA means it's game over for the Indian IT and Healthcare sector might have more to do with panic than facts.
However, this does not mean that investors should blindly put their money into these sectors. Before investing in a company from any sector, global headwinds or not, do the due diligence. Past performance should indeed be considered. But more often than not, it is not a true indicator of what is to come.
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