9 October 2007
* When: from Wednesday, Oct 10
* Profits of top software services firms seen rising 11-23 percent, but a stronger rupee and a possible U.S. economic slowdown are concerns.
london, Oct 9 (Reuters) - Indian software services firms are set to report strong quarterly profits as more foreign companies look to outsourcing to cut costs, but the rupee's surge to 9-½ year highs, wage hikes and a possible U.S. slowdown are concerns for the export-driven sector.
Margin pressure is likely to persist for the companies such as bellwhether Infosys Technologies Ltd (INFY.BO: Quote, Profile, Research) and Wipro Ltd (WIPR.BO: Quote, Profile, Research), with the currency a particular concern, analysts said.
"The quarter's performance will be good because the demand is still strong, but there are lot of concerns surrounding the sector, mainly because of the rupee appreciation," said Harit Shah, a sector analyst with Mumbai-based Angel Broking.
"The U.S. slowdown is also a wild card. We don't know what's the scene there," he said. "Margins will be under pressure ... I don't think in the near term the stock performance of these companies will be great."
The fiscal second quarter earnings season starts on Wednesday with mid-sized outsourcing firm iGate Global Solutions Ltd (IGAT.BO: Quote, Profile, Research), followed on Thursday by Bangalore-based Infosys, India's second-largest software services exporter. Nasdaq-listed Infosys (INFY.O: Quote, Profile, Research) is expected to post an 18.5 percent jump in net profit for the quarter ended September to 11.0 billion rupees ($280 million), according to a Reuters poll.
Sector leader Tata Consultancy Services Ltd (TCS.BO: Quote, Profile, Research) is likely to post a 23.3 percent rise in quarterly earnings on Oct. 15, followed by No. 3 exporter Wipro, which is expected to report on Oct. 19 that profits rose 11 percent.
For poll details, please see [ID:nBOM57029]
Merrill Lynch said in a report that given an uncertain market environment it would be "unrealistic" to expect firms such as Infosys and Satyam Computer Services (SATY.BO: Quote, Profile, Research) to tweak up annual revenue guidance, in dollar terms, by more than 1 to 3 percent.
The rupee
Analysts estimate that every 1 percent rise in the rupee slices 30 to 50 basis points from the margins of software services firms, which get more than half of their revenue from the United States, although most companies had significantly increased their currency hedging positions in the last two quarters.
Last month, UBS said it forecast dollar/rupee at 39.0 and 38.0 in one month and three months respectively, from previous forecasts of 40.0 and 39.0 respectively.
DOG'S BUSINESS
India's large pool of English-speaking workers and cheaper wages have helped attract outsourcing by firms such as Cisco Systems (CSCO.O: Quote, Profile, Research), Nortel (NT.N: Quote, Profile, Research), and General Electric (GE.N: Quote, Profile, Research), but there are concerns the sector's earnings growth could slow
earnings growth could slow
n July, First Global Securities downgraded India's IT services sector to "underperform", citing the rupee's strength.
"The fact of the matter is that the weak and, therefore, favourable rupee gave the sector a terrific subsidy, spanning many years," it said. "It has been made to look good largely because of the currency subsidy.
"Stripped of that, the business looks like a dog business."
Earnings concerns saw software stocks lag in the September quarter, trailing a record-setting rally in the broader market.
Shares in Tata Consultancy fell 8 percent during the quarter and Infosys, which the market values at about $29 billion, shed 1.7 percent, while the main Mumbai market (.BSESN: Quote, Profile, Research) rose 18 percent. The sector index (.BSEIT: Quote, Profile, Research) declined nearly 5 percent.
"On balance, we see no more than a short-term bounce in IT stocks, followed by another period of uncertainty and volatility - that may extend into 2008," said CLSA Asia-Pacific Markets in a research report.
"This is driving our continued and long-standing underweight stance on the sector as a whole." ($1 = 39.4 rupees) london : Time 6.00 NOW RECENT ARTICAL ON INFY tcs and it compnies
by erectusplus at 18:49:00 |
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