Indian IT firms may show strong earnings growth in Q3

Wednesday, 07 January 2004, 20:30 IST
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NEW DELHI: India's high-profile software makers are likely to show strong earnings growth in the quarter that ended December due to increased IT spending by global corporations and the easing of pressure on billing rates. While growth in demand for software solutions is expected to have boosted the earnings of IT firms in the October-December quarter, the rupee's rise against the dollar would continue to put pressure on the profit margins of the firms, say experts. Over the next few weeks, a raft of leading domestic software development and services companies would announce their financial numbers for the quarter ended December 31, 2003. Infosys Technologies, India's largest listed software exporter, would be the first among the marquee technology firms to announce financial results on Friday. Most analysts and stock market investors look to financial performance of blue-chip technology companies such as Bangalore-based Infosys and Wipro as an indicator of the domestic IT industry's health. "The October-December quarter has been very good for software services companies," said Kiran Karnik, president of the National Association of Software and Service Companies (NASSCOM), India's premier IT industry umbrella group. "The growth momentum is very strong in the industry. Most of the companies are getting new orders," Karnik told IANS. Satyam Computer Services Ltd., one of India's leading software makers, in December announced that it had bagged an $8-million contract for the integration of technology services at an international airport in Bangkok. "Most importantly, the pricing pressure is also coming down. Though it is not completely off, it is certainly tapering off," said Karnik. Earnings in the last few quarters of software companies were badly squeezed by pressure on billing rates, which companies charge from their clients for services delivered, following stiff competition and a cutback in outsourcing orders. Experts say with the US economy showing signs of revival and IT spending by global corporate houses going up during the last few months, Indian software firms may have faced less billing pressure in the quarter ended December. Profit growth of software companies, however, may have got somewhat restricted in the October-December quarter by a sharp appreciation in the value of the rupee against the US dollar, believe analysts. The rupee has risen over five percent against the dollar in the calendar year 2003 due to the dollar's global weakness and persistently strong foreign fund investment in Asia's third largest economy. "Earnings of top software companies will definitely be pressured by the rupee's strength in the current fiscal year," said Neeraj Deewan, a senior analyst with New Delhi-based Quantum Securities. "Most top Indian software makers on an average earn 70 percent of their annual revenue from the US. So the sharp rise in the value of rupee will badly hit their export earnings," he added. While unveiling its result for the July-September quarter, Bangalore-based Infosys had said the continuing rise in the value of the rupee against the US dollar might put some roadblocks in the company's growth path. Infosys, which is also listed on the Nasdaq stock exchange, posted a sharply higher than expected profit growth in the quarter ended September. Infosys' net profit for the July-September quarter in the current fiscal year touched 3 billion, a growth of 33 percent on the 2.26 billion logged in the same period the previous fiscal year. Shares of heavyweight software companies have staged a smart rally in the last few sessions on investor hopes that most of the firms would post better than expected profit growth during the October-December quarter.
Source: IANS
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