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Increased IT spending to boost Q3 earnings of Indian software firms
Tuesday, 07 January 2003, 20:30 IST
NEW DELHI: India's high-profile IT sector is likely to show strong signs of recovery in their October-December quarterly earnings on increased technology outsourcing by overseas clients.
Analysts say financial numbers of most Indian blue-chip software makers for the quarter ended December 31 would clearly indicate that the elusive recovery is on the way and that the technology spending slowdown is finally over.
"With the scars of fierce competition for clients and pressure on billing rates getting wiped out, I think the companies will post robust numbers for the third quarter," said Neeraj Deewan, a senior analyst with Quantum Securities.
"Most of the top rung software firms are expected to meet their projections for the quarter. So the focus will clearly be on which company beats the market expectations and raises guidance for the near-term business," Deewan told IANS.
And as the top software firms gear up to unveil their financial report, analysts say the earnings would be led by strong volume growth and tapering billing rate declines that had crimped the profit and sales growth.
A raft of leading software development and services companies will announce their financial numbers for the October-December quarter of the fiscal year 2002-03 over the next couple of weeks.
Infosys Technologies, India's second largest software exporter, will fire up the earnings season by announcing its numbers Friday. Most analysts and investors look to Infosys' performance as an indicator of the industry's health.
Profit growth of Indian software makers slipped in the recent past as overseas clients pared orders, as a cost cutting exercise in a slowing economy and new customers demanded sharply lower prices.
As a result, software firms such as Infosys and Wipro, the country's largest software company by market value, struggled to maintain growth after doubling profits annually in prior years.
The software business, however, showed signs of life again in their July-September quarterly results with most Indian companies resuming hiring. They anticipate a slew of new large orders that had faded away in the tech meltdown.
"A pick up in hiring and spending after months of uncertainty triggered by the global economic slowdown and India-Pakistan border tension underlines optimism about sales growth accelerating in the third quarter," said Deewan.
Analysts say increased visits after the withdrawal of the travel restrictions imposed by some Western countries last year also indicated a general pick up in outsourcing demands in the quarter ended December 31.
The U.S. in June 2002 advised Americans planning to travel to India to defer their plans due to fears of a possible war between nuclear capable rivals India and Pakistan.
Other countries such as Britain, Australia and New Zealand issued similar travel warnings.
India's high-profile IT industry was badly hit by the travel restrictions as it resulted in delays in business finalisation process, and in some cases outsourcing orders were also cancelled.
The bigger players in the sector such as Infosys Technologies and Hughes Software Systems fared better than expected in the quarter ended September 30, 2002, raising their outlooks for the year ahead.
"The last quarter numbers of the top-rung companies and the near-term earning guidance has certainly triggered hopes that months of bad news have finally come to an end," said a tech industry analyst with ICRA India Ltd.
"I think it is becoming increasingly clear that we are past the bottom and the gloom that had overtaken the sector is giving way to hopes of recovery in the months ahead," the analyst added.
Infosys reported 12 percent higher profits for July-September quarterly period to 
2.26 billion and raised its revenue forecast.
The Nasdaq-listed company hired about 1,800 people in the July-September quarter, more than three times the 566 it did in the preceding three months, triggering speculations that it expects a big rise in offshore outsourcing.
It forecast income from software services and products at 34.33 billion to 34.67 billion for the current year to March, up from its earlier estimate of 31.08 billion to 31.95 billion.
"Increased acceptance for the offshore outsourcing model has accelerated the revenue growth beyond our own internal projections," said Infosys chief executive Nandan Nilekani.
"There is a shift in IT spending. Customers are looking at reducing costs and optimising their IT spending," he said, adding outsourcing to India was on the upswing.
Hughes Software Systems, one of India's leading communication software firms, reported a higher-than-expected jump in second-quarter earnings and forecast sequential sales growth would continue to be strong.
Source: IANS
2.26 billion and raised its revenue forecast.
The Nasdaq-listed company hired about 1,800 people in the July-September quarter, more than three times the 566 it did in the preceding three months, triggering speculations that it expects a big rise in offshore outsourcing.
It forecast income from software services and products at 34.33 billion to 34.67 billion for the current year to March, up from its earlier estimate of 31.08 billion to 31.95 billion.
"Increased acceptance for the offshore outsourcing model has accelerated the revenue growth beyond our own internal projections," said Infosys chief executive Nandan Nilekani.
"There is a shift in IT spending. Customers are looking at reducing costs and optimising their IT spending," he said, adding outsourcing to India was on the upswing.
Hughes Software Systems, one of India's leading communication software firms, reported a higher-than-expected jump in second-quarter earnings and forecast sequential sales growth would continue to be strong.
Source: IANS