Pricing stress, rupee gains to dent IT firms' results

Tuesday, 08 July 2003, 19:30 IST
Printer Print Email Email
NEW DELHI: The financial results of India's high-profile software makers for the April-June quarter are all set to reflect the injuries inflicted by an unrelenting pricing pressure and a rise in the rupee value. Analysts say if the Iraq conflict and SARS spread shockwaves in India's export oriented IT industry in the January-March quarter, earnings in the April-June period are likely to be squeezed by rupee appreciation and billing pressure. A raft of leading software development and services companies will announce their financial numbers for the quarter ended June 30, 2003 over the next couple of weeks. Infosys Technologies, India's largest listed software exporter, will be the first among the marquee technology firms to announce financial results Thursday. Most analysts and stock market investors look to Bangalore-based Infosys' financial performance as an indicator of the domestic IT industry's health. "The April-June quarterly results are going to be more of the same story, only basic reasons for muted growth would change," said Sameer Kochchar, CEO of IT industry research and consultancy firm Skoch Consultancy. "The industry has been reeling under severe pricing pressure due to increasing competition and decreasing spending on tech services for the last few quarters. There has been no change in the last quarter," Kochchar told IANS. "Additionally, the software companies are also likely to echo the tremors of a sharp rise in the value of the rupee against the dollar in the April-June quarter." Already reeling under billing pressure and a cut back in order by overseas clients, the rupee appreciation in the last quarter came as a major setback for the software companies that on an average earn 70 percent of their annual revenue from the U.S. The rupee has risen by nearly two percent against the dollar in the past quarter. Foreign exchange dealers say that the rupee has gained strength in the domestic market by large-scale foreign fund inflows. Stocks of heavyweight software companies are witnessing large-scale selling pressure ahead of the unveiling of their quarterly results on fears most of the firms would post lower than expected financial numbers. "The market is cautious about the earnings prospects of software companies. Investors don't expect any positive news to emerge this time from the quarterly earning season," said Neeraj Deewan, a stock market analyst with Quantum Securities. "I think sell-off on the tech counters will intensify as we come closer to the start of the earning season. More than the past quarter's result, investors would also closely track the kind of guidance they issue for coming quarters." Analysts say if the tepid growth projections made by IT firms, while announcing their January-March results, and the subsequent battering of their stocks are any indication, turbo-charged growth rates will elude the industry for some time. The softening demand and intense pricing pressure would ensure that the differential annual profit growth rate between the once robust IT and other sectors is not going to be as high as before in the years ahead, they say. Wipro Technologies had said in April that pressure on prices would continue to damage margins in the months ahead. The revelation from India's most valuable software company by market capitalisation came few days after Infosys shocked the market with a tepid forecast. Infosys, which is listed on the tech-laden Nasdaq stock exchange, warned that sliding profit margins would slow profit growth in the current fiscal year, sparking a massive sell-off in stocks.
Source: IANS
siliconindia