Blog: You, us, everyone

The information technology sector has been in the doldrums for six consecutive quarters, and the question of when it will return to positive territory is warranted. While we agree that valuations may have been exaggerated for certain moments in the past, we continue to argue that growth-based investors are advised to continue to maintain an exposure to disruptors and enablers on a medium to long-term basis.

While the concerns of a recession in 2023 are dissipating, contrarian investors may start to look at beaten-down opportunities in the technology sector, which we believe has one of the best long-term opportunities. As of now, we expect some more pressure on the earnings outlook. Therefore, it is hard to see growth opportunities to engage with a sustainable price rally from current levels. Nevertheless, investors should start positioning themselves over time. 

As a key ratio, we consider EPS Growth going forward into 2024; other key parameters considered are profitability, market share, and analyst review. In our review, we won’t consider Mega Tech and FAANG which, at this point, are of scope as they are no longer considered as sufficient disrupters and enablers. 

Among technology disruptors, we like SaaS companies with network effects and accelerating market share gain prospects. Among enablers, we like companies exposed to trends like cloud, Big Data, and artificial intelligence (AI). A key ratio to look at is how much a company is gaining in market share. As key technology evolves rapidly, once a company starts losing market share, be it because of an outgoing product or a technology misstep, market share losses will just accelerate and the entity will irrevocably spiral down. 

As of now, the market is geared towards value stocks, but the recent sharp underperformance may result in a reality check with some disappointing growth prospects. Subsequently, investors may start building up conviction calls and we would deduct that early cyclical companies will gather the required attention. 

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