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Analysts see flat Q4 for software sultans

Bipin Chandran

A recovery in the Indian software services seems far away with analysts predicting flat growth from sector majors including Infosys, Wipro, Satyam and HCL Technologies in the quarter ended March 31, 2002.

Analysts said this is primarily because the US recovery has been delayed, denting the business plans of Indian software services companies.

"The market is expecting the recovery in the US to happen some time in the July-September quarter and the impact will show on the Indian software services companies in the October to December quarter," said Sachin Mohindra, fund manager, Chescor International.

According to Mohindra, the software services companies both large as well as some of the medium-sized companies will show a flat growth.

"But companies like Infosys will better the market expectation of 15 to 20 per cent growth," Mohindra said.

Nimish Shah, director & CEO, Parag Parikh Financial Advisory Services Ltd, however, paints a rather dim picture.

"The performance of the Indian technology sector, irrespective of their size will be very damp and disappointing. This is mainly due to the delay in business pick up and the companies taking time to adjust with the changing business scenario in the US," Shah said.

Analysts also pointed out that the next two quarter will also remain as a trouble quarter for the Indian software services companies.

"The next two quarters will also be flat or even worse. We are not expecting a pick up in the sector for another six months," said a Delhi-based analyst tracking the technology sector, with an MNC financial institutions, adding that the quarter ended March 31 will be a flat or a damp quarter for the companies.

Market, however, expects a pick-up in volumes in outsourcing to the Indian companies. "The Indian companies will see a pick-up in volumes. Moreover, the projects size will also become larger," Mohindra said.

The typical contract size that is outsourced to Indian companies is expected to be in the $40 to $50 million range from the present $20 million. Companies are anticipating the duration of the projects also to go up to at least three years from the present three-six months.

However, Indian companies are also expected to be under pricing pressure. "Indian companies will be under pricing pressure. We expect that though their clients would give out larger projects, they would outsource it at much lower prices," Shah said.

"However, we anticipate the higher volumes to make up for the lower pricing," said Mohindra, adding that, as a result, the net impact on the performance of the companies would be minimal.

Market sources also said that the Indian software services companies would depend on alliances to venture into newer markets like the Asia-Pacific and Europe.

"The alliance of Wipro and IBM is a good example. This alliance will give the Indian company a stronger presence in the Asia-Pacific region. Moreover, the alliance will also help Wipro to enter the Japanese market, which has so far remained an enigma for the Indian software companies," said Mohindra adding that the sector is likely to see more such alliances.

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