India's top software services firms should post quarterly profit gains of around a fifth on robust outsourcing demand, but the spectre of recession in their main US market, and a strong rupee, cloud the outlook.
Indian outsourcers that offer western firms technology and back-office services are expanding into Europe and Asia-Pacific to cut their dependence on a US market that generates more than half their revenues.
Investors will watch Infosys Technologies Ltd, the No.2 software services exporter that kicks off the earnings season on Friday, for what it says in its outlook on pricing and hiring to see if business momentum can be sustained.
"The companies should be able to meet expectations without any problem in the past quarter, but the focus will be on the outlook," said Harit Shah, analyst with Angel Broking. "Investors will be looking for some clarity on how the technology budget will shape up for the year." Nasdaq-listed Infosys should report net profit of 11.77 billion rupees ($299 million), up 7 per cent from the July-September quarter and a fifth higher than last year, a media poll shows.
Software services firms are looking to cut costs, but a stronger rupee, rising pay and slowing US economy are big worries. Infosys was the worst performing stock in the benchmark BSE index last year, falling 21 per cent while the main index rose 47 per cent.
Traders see little respite. "We don't expect any positive triggers in the coming quarters which could lead to a significant and sustainable re-rating," said Religare Securities, which rates the sector "neutral". Top exporter Tata Consultancy Services Ltd should post an 18.7 per cent rise in earnings, while third-ranked Wipro should increase earnings by 16 per cent.
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