Rupee helps, wages bite IT cos!

BANGALORE: India's top information technology outsourcing companies are set to report their first quarter results for fiscal 2008. While the profits are likely to rise, thanks to a weaker rupee, further losses for their major clients, US financial companies, could lead to falling orders.

Infosys Technologies and No. 4 Satyam Computer Services are expected to raise their revenue guidance for the full-year to March, analysts said, adding that they are keen to see evidence of new deals and their pricing. Although Indian outsourcing firms are expanding to Europe, Asia and the Middle East to lower their dependence on the United States, the country still accounts for roughly half of their sales.

The rupee's 6.8 per cent fall against the dollar in the June quarter has helped offset the effect of large wage increases and costs related to getting visas for their staff overseas on margins.

Brokerage Prabhudas Lilladher expects Infosys' margins to drop 34 basis points and TCS to dip 17 basis points this quarter compared to the previous one. Every 1 per cent rise or drop in the rupee impacts the profit margins of Indian software services firms by 30 to 50 basis points, they said.

"In the short-term, the rupee is likely to further weaken against the dollar or remain stable given the exacerbation of both domestic and global negative factors," India Infoline said. Shares in Infosys, which the market values at $24 billion, rose 21 per cent in the June quarter and Satyam added 11 percent.

Morgan Stanley said in a report this month the credit crisis fallout would extend into 2009, and that mortgage asset overhangs would drive additional write-downs for Wall Street firms, such as Citigroup and Goldman Sachs, as they struggle to clean up their balance sheets.

"Clients' postponement, cancellation of IT projects, indecisiveness over IT spending due to uncertainty over global economic growth remain key concerns," Khandwala Securities said in a note. Brokerage India Infoline said it had heard that some large banks, financial services and insurance companies were demanding significant price cuts. "This, along with low-volume growth, manifests a tough operating environment," it said.

A large pool of English-speaking graduates and comparatively cheaper wages had helped Indian firms ride an outsourcing boom for years, but the growth slowed last year when Wall Street banks issued huge write-downs related to the subprime crisis and as the US economy lurched towards recession.

Infosys which reports first results on Friday is likely to see net profit rise 17.6 percent to 12.7 billion rupees ($295 million) in the fiscal first quarter ended June from a year earlier, according to a Reuters poll of 15 analysts showed. Tata Consultancy Services, which reports on July 16, should post a modest 5.5 per cent rise, hurt by its high dependence on the banking and financial services sector.

India's software and back-office services companies revenue growth will slow a little to 25 per cent in 2008/09, down from an estimated 29 per cent a year earlier, lobby group National Association of Software and Service Companies has said.

Indiatimes Infotech dt. 10 7 2008