With US financial giants trimming their operations after huge sub-prime losses, Indian information technology companies are likely to take a hit in profit growth for the fourth quarter of 2007-08.
Profits of IT companies, which have been growing at well above 30 per cent annually for the last three years, are expected to slow down to 18-20 per cent during 2008-09, say analysts.
The signs of a slowdown were evident in the third quarter when IT majors like Infosys, TCS and Wipro reported lower than expected profits. The appreciation of the rupee against the US dollar and defaults in high-risk loans in the US ate into profits of IT giants.
In 2008-09, Indian IT companies that derive more than 70 per cent of their revenues from the US are likely to cut down IT project expenditures. This could dent future earnings of these companies, analysts said.
“Reports of a few global clients stalling projects and cutting back on IT spends reinforces our cautious view on the sector. Additionally, we have noticed a shift in sentiment and management views across companies are cautious on the medium-term growth outlook,” said Jayendran Rajappa and Jaspreet Chabbra of Mumbai-based brokerage house Prabhudas Lilladher in their recent report on the earnings outlook for the IT sector.
IT bellwether Infosys is slated to announce its results on April 15 (Tuesday). Results of the IT giant, which are keenly watched as a precursor to the sectoral trend, have already seen a slow down in the third quarter. Mumbai-based software company Mastek, which announced its third-quarter results (the company follows a July-June financial year) on Wednesday, reported a 65 per cent increase in net profits. Mastek is a mid-sized IT company with only 3.4 per cent the revenues of Infosys and is not an indicator of the trend in the sector. Despite the 65 per cent growth in profits, the company management did not sound very optimistic about the future.
“We are cautious going forward. We are banking on new projects to improve our “ said Sudhakar Ram, CEO of Mastek.
Infosys, which has clocked above 40 per cent cumulative annual growth, is expected to report a meagre 18-20 per cent rise in revenues going forward.
“We expect Infosys to guide at 18-20 per cent in dollar terms revenue growth year-on-year,” Emkay Share and Stock Brokers said in its IT services result preview.
Shares of the company closed on Thursday at Rs 1453.40, down by 1.79 per cent, or Rs 26.50. The stock has declined 4.5 per cent from a week ago. The BSE IT index closed the day lower by 0.77 per cent at 3,705 points. The index is down by 23.85 per cent from a year ago.