U.S. slowdown may hit Indian IT cos

By SiliconIndia   |   Tuesday, 10 April 2007, 07:00 Hrs
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New Delhi: The slowdown in the U.S. economy along with domestic factors may impact revenues and earning growth rates of all major IT companies of India.

The domestic factors could be like service tax on leased and rented premises and imposition of minimum alternate tax (MAT), reported a national daily.

According to a report by HSBC Securities along with Capital Markets (India) projects that revenue and net profit growth rates for eight IT majors will decline in the range of 500-1,500 basis points in 2007-08 since U.S. remains the largest market for Indian IT services companies, accounting for 60-70 per cent of exports.

In the year 2006, Technology and IT spending was only 11 percent higher than in 2000, with contribution from computer and software services increasing to 40 per cent in 2006 from 36 percent in 2000 (implying lower volatility).

The report suggests that the share of hardware and communications declined, reducing contribution from volatile sectors. The report also maintains that offshore vendors are growing at a considerably faster pace than their global peers and are gaining market share from incumbents.
The report also warned that service tax is the next dampener. An Emkay Research states the 12.5 percent service tax on leased and rented premises could have a negative impact of 50-100 basis points on the IT majors.

The impact of MAT on earnings of IT companies could range from 1-6 per cent, taking into account a company's exposure to offshore revenues, which account for 40-70 per cent of the total revenues.

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