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Caution reigns as India IT firms kick off results

Anshuman Daga/Rosemary Arackaparambil in Bangalore/Mumbai | April 07, 2003 19:15 IST

Engineers work in the control room at Infosys Technologies campus at Electronics City in Bangalore. Photo: ReutersIndia's top software exporters are likely to kick off the earnings season this week with an uninspiring earnings outlook for the current year as clients delay orders amid uncertainties linked to the Iraq war.

Analysts say tech spending by companies in the United States, the biggest market for Indian software firms, may face hiccups caused by a sluggish economy as the costs of a war in Iraq bite.

Infosys Technologies Ltd, India's No. 2 software exporter after unlisted Tata Consultancy Services, will set the ball rolling on Thursday by unveiling fourth-quarter results.

Analysts expect the firm, which earns about 75 per cent of its revenue from North America, to forecast a rise of 20 per cent in sales this year, lower than the estimated growth of 39 per cent for the past year ended in March.

"The expectations are definitely getting toned down due to the uncertainties related to the Iraq conflict and the sluggish US economy," said Suhas Naik, head of equities at IL&FS Asset Management, which owns Infosys shares.

"Guidance is clearly going to be an issue," said Pramod Gupta, analyst at Enam Securities. "Not only do the firms have little idea about the outlook, their clients are also unsure."

The Bombay Stock Exchange infotech index has fallen nearly 17 per cent in the past three months, nearly thrice the losses logged by the 30-share benchmark Sensex.

"Our analysis of the IT services sales cycle indicates that sluggishness in contract signings in January-March 2003 could materially impact growth in the September 2003 quarter," CLSA Emerging Markets said in an earnings preview.

Software services, the fastest-growing segment of India's export sector, is forecast to post exports of about $10 billion for the past year to March, nearly matching the 30 per cent growth of the previous year.

Indian firms are emerging as one-stop shops for services ranging from software to back-office functions such as payroll processing delivered over high-speed telecommunication links.

Earnings poll

A Reuters poll of 14 brokerages released on Monday forecast Infosys, the flag-bearer of India's low-cost software army, to post a six per cent rise in revenue from the preceding quarter and 49 per cent up on the year, beating its own estimates.

India's top four listed software firms disappointed markets earlier this year after their October-December results showed earnings growth was slowing amid tightening profit margins.

The Reuters poll forecast sales at Wipro Ltd, the No. 3 exporter, to grow nearly nine per cent on the quarter while Satyam Computer Services, the fourth largest, is set to report a 3.6 per cent rise in sales.

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