Emergence of Gig economy

 The emergence of digital India has supported the Gig economy in India as more and more workers embrace this idea that gives them greater flexibility to manage their time and certain working conditions. It helps workers to augment their income by taking such assignments which are generally temporary in nature. In most cases, such tasks( if related to IT sector) can be executed from remote locations, thus enabling workers to cater to demand from across the Globe. On the other hand, companies find it convenient to hire gig workers for routine tasks like admin/ delivery of goods, etc. during periods of seasonally high demand. Gig economy has its  own pros and cons. It helps a significant number of informal workers to participate in the formal economy in their own desired time slots. It helps companies to be adequately staffed to manage seasonal variation in demand without having to hire permanent workers. The disadvantages include concerns around data privacy of sensitive client data as gig workers come from various backgrounds. Also, many times, companies often make these workers work under challenging working conditions with little benefits. To summarise, Gig economy is here to stay and thrive and would provide a source of employment to people who cannot take up regular jobs.

Outlook for Indian Telecom sector for 2023

 I remain positive on the Telecom sector as  2G to 4G migration, increased data monetization and expected tariff hikes would support ARPU growth for telecom service providers in near term. Tariff hike of around 15-20% is expected in near future as telecom companies try to achieve more sustainable level of ARPU.  Bharti Airtel remains on strong footing with industry leading ARPU, growing subscriber base and excellent track record in business execution and is expected to deliver superior result going ahead. The financial condition of VIL remains precarious as it continues to lose subscribers and has the lowest ARPU in the industry (implying weak customer mix) and we expect it to underperform. It urgently needs massive capital infusion to augment its capex to catch up with peers in terms of network quality.  Reliance Jio is expected to maintain the steady growth trend in subscribers and ARPU, through the increase in subscribers might moderate going ahead.  However, at the sector level, there is overhang of 5G related capex for telecom service providers and it might adversely impact their free cash flow generation. Also, the telecom operators would have to come up with newer ways to monetize their investment in 5G technology. In terms regulatory provisions, we expect the draft Telecom bill, that consolidates three separate acts governing the telecom sector — Indian Telegraph Act 1885, Indian Wireless Telegraphy Act 1933, and The Telegraph Wires, (Unlawful Protection) Act 1950 to be passed by the Parliament in 2023.

Outlook on Indian IT sector for 2023

 I continue to be cautiously positive on the IT services sector as  it faces near term challenges due to macroeconomic concerns in the US and Europe (key markets of IT companies). This has led to more time in decision making on the part of clients and it can lead to near term moderation in deal booking/revenue growth. The clients have become cautious especially in sectors like Retail, Hitech and Mortgages etc. regarding evolving macroeconomic situation and many of them are trying to optimize their cost structure and consequently, we expect an increase in work volume related to cost optimization projects for Indian IT companies.  However, the current valuation of IT companies(down 30-40% from peak valuation) captures most of near term headwinds.  The medium to long term demand environment remains strong led by accelerated adoption of technologies such as cloud computing, artificial Intelligence, machine learning, etc.  by enterprises.  We expect employee hiring to moderate for most IT companies in near term as they focus on training/utilization of recently hired employees. The operating margin has mostly bottomed out for the sector and we expect EBIT margin should improve sequentially during Q3FY23 and Q4FY23, led by improving employee pyramid(amid increased fresher hiring) and positive operating leverage. The costs related to travel and admin have started coming back to an extent but IT companies should be able to manage these margin headwinds through  operational efficiency measures. We prefer Tier 1 IT stocks over Tier 2 IT stocks given that they are better placed to manage near term macroeconomic headwinds.